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Why Capital Gain Account Scheme?

To encourage the reinvestment of capital gains/net consideration the Indian government introduced the capital gain account scheme in 1988. the Indian government provided tax relief if the capital gains are re-invested.

What is Capital Gain Account Scheme 1988?

In this scheme, the taxpayer is given an option of depositing underutilized capital gains /net consideration in a specified bank account to be known as “capital gain account.” Which can be opened under the provision of capital gain account scheme 1988.

Learn by Example: –   

  • Mr. Deepak sold a residential property on 20.08.2021 for ₹ 40 lakhs with a long-term capital gain amount of ₹ 25 lakhs.
  • He is supposed to invest the amount of ₹ 25 lakhs into a new residential property within 2 years (for acquisition) and 3 years (for construction).
  • He invested ₹ 10 lakhs into a plot of land for the construction of a house/property on 23.01.2022.
  • But he could not construct the house due to pandemics or some other reasons therefore he may avail capital gain exemption by investing remaining ₹ 15 lakhs in the capital gain account scheme (CGAS) on or before the expiry of the due date of filing ITR for the relevant assessment year.

Procedure to open Capital Gain Account?

There are 28 state-owned banks in India where capital gain accounts can be opened. Or we can say that This scheme is available in all the authorized banks in India except rural branches of banks so inquire about the scheme from your nearest branch.

The following steps are for the process to open a Capital Gains Account.

  • Capital Gains account can be opened by filling up an application of Form A first.
  • Submit required documents such as PAN card copy, proof of Address (Aadhaar card copy), and a photograph.
  • The amount can be deposited by cash, cheque, or demand draft.
  • Assessee can deposit the amount in installments or as a lump sum payment.

There are two types of deposit accounts/capital gain account:

Capital Gains Account – Type A – Savings Account: – In case of Type A Account, this is a regular saving account and same interest payable as the interest paid on normal saving account and also passbook is issued to the deposit holder.

Capital Gains Account -Type B – Term Deposit Account – Type B account will be the form of Term Deposit Account (cumulative as well as non-cumulative) which is quite similar to regular fixed deposit accounts. The interest rate on type B account is remain same to the interest paid on fixed deposits by the bank.

The deposits may be made under Sections 54, 54B, 54D, 54F or 54G ,54GA of the income tax.

What should be the treatment of interest earned on Capital Gain Account scheme: -

  • The amount of interest earned is taxable as income from other sources
  • It is not necessary that in case of Type B account such amount should also be reinvested into new assets.

What is the procedure of Withdrawal from the capital gain account?

  • Type A account: no such restrictions as such
  • Assessee having Account- type A, at any time after making an initial deposit, can apply on Form ‘C’ with Passbook for withdrawal of amount from the authorized bank.
  • ‘Form D’ to be submitted for subsequent withdrawal by the depositor.
  • The money withdrawn must be reinvested in a specific investment within 60 days of the withdrawal or redeposited in a type A account.

What if amount could not be used within specified period?

  • Such amount shall be taxable under the head of capital gains.
  • Further for closer of such account, a ‘Form G’ is submitted along with the approval of jurisdiction AO.

However, if the assessee is deceased then the legal heir shall submit ‘form H’ for withdrawal of the deposited amount.

Other Features of Capital Gains Account

  • Only Individuals and HUF can take benefits capital gains account.
  • Nomination facility available in CGAS.
  • Account can be transferred from one branch to another.
  • No loan facility against such deposit is provided.
  • Period of deposit does not exceed from 2 to 3 years.
  • Nature of account can be changed from type B to type A.

Frequently asked questions

Further for closer of such account a ‘Form G’ is submitted along with approval of jurisdiction AO.

you have to deposit only 12 lakhs in CGAS to save tax, but you have to purchase within 2 year or construct within 3-year new residential property other wise 12 lakhs become taxable, and you have to pay tax.

A capital gain account can be opened in any authorized bank recommended by the Government which includes Central Bank of India, State Bank of India and its subsidiaries, Syndicate Bank, IDBI Bank, Bank of Baroda and Corporation Bank.