Govt also provides for various schemes for saving tax on such capital gains under Section 54, 54B, 54D, 54F etc. (Refer: How to save Capital Gains Tax)
However, as per the provisions of these sections, the amount is required to be reinvested in specified investment types before the specified period. However, if the due date of filing income tax returns falls before the expiry of the specified period, the amount of capital gains is required to be invested temporarily in the Capital Gains Account Scheme which can be easily withdrawn at the time of investment in the specified instrument.
- Recommended Read: Procedure for filing your Income Tax Return
Capital Gains Account Scheme
As per the Income Tax Act, the taxpayer is allowed some time (2/3 years) to invest the capital gains in specified instruments. However, in many cases the due date for filing income tax returns for the year in which the capital gains arises is before the expiry of the specified period.
To avoid such issues, the income tax act prescribes that the taxpayer should deposit the amount of capital gains in the capital gains account scheme on or before the due date of filing of income tax returns which can be easily withdrawn at the time of investment in the specified instrument.
Opening of Capital Gains Account
The Capital Gains Account Scheme was introduced in the year 1988, and as per the Capital Gains Account Scheme the amount of capital gains to be claimed as an exemption should be either be re-invested or deposited in the Capital Gains Account before the due date of filing of returns.
The Govt has notified 28 banks which can open the Capital Gains Account on behalf of the Govt. All branches of these 28 banks except Rural Branches are authorised to open the capital gains account.
- Recommended Read: Banks authorised to open Capital Gains Account
To deposit the amount in the capital gains account, the taxpayer would first be required to apply for opening the account by making in application in duplicate Form A (Download Form A). He would also be required to submit the following documents along with Form A – Proof of Address + Copy of PAN Card + Photograph.
The payment for deposit in the Capital Gains Account Scheme shall be made either in cash or cheque or demand draft along with the application. Such deposit can be made either in lump-sum or in installments.
If the deposit is being made by way of cheque or demand draft then, subject to the cheque or draft being realised, the effective date of deposit for the purpose of claiming exemption will be the date on which the cheque or draft is received in the deposit office along with the application form.
A taxpayer intending to avail the benefit under more than 1 Section of the Income Tax Act shall make separate applications in the same manner for opening an account under different sections of the Income Tax Act.
Features of Capital Gains Account Scheme
There are 2 categories of Capital Gains Account which are as follows:-
- Capital Gains Account – Type A – Savings Account: This is like a normal savings account and the interest payable on this account is the same as the interest paid on normal savings account by that bank. In case of Type A Account, the deposit office shall issue a pass book to the depositor wherein all amounts of deposits, withdrawals, together with the interest due, shall be entered over the signature of the authorised officer of the Bank.
- Capital Gains Account -Type B – Term Deposit Account: This is like a fixed deposit wherein the amount is deposited for a fixed period of time. The interest rate on this account is equivalent to the interest paid on fixed deposits by the bank. As Type B accounts are same as Fixed Deposits Account, any withdrawl from this type of account attracts a penalty for pre-maturity withdrawl. In case of Type B Account, the deposit office shall issue a deposit receipt wherein the principal amount of deposit, date of deposit, date of maturity of deposit shall be entered over the signature of the authorised officer of the Bank.
Capital Gains Account Type A is advised when the amount of capital gains is to be used for construction of a house as the amount would be required to be withdrawn in various stages. Type B Term Deposit Account is advised when the amount of capital gains is to be utilised for purchase of a house.
Capital Gains Account Type B is also of 2 types – Cumulative and Non-Cumulative. Under the cumulative option – the interest is re-invested and the total amount is paid at the time of the completion of the term period or at the time of withdrawl (whichever is earlier). Under the non-cumulative option, the interest is paid at regular intervals and is not reinvested.
Interest on Capital Gains Account Scheme
- The Interest at such rates as may be specified by the Reserve Bank of India (RBI) from time to time shall be allowed for each calender month on the lowest balance between the close of the 10th day and the end of the month and shall be credit to the account at the end of each half year.
- In case of cumulative deposit in Account B, the amount of interest accrued will be deemed to have been reinvested and in case of non-cumulative deposit in Account B, the amount of interest due will become due and payable at quarterly intervals.
- In case of conversion of the account or premature withdrawl from the account or closure of the account, the interest payable shall be the interest rate applicable for the period for which the amount was deposited less 1% as penalty for premature withdrawl.
- The interest earned on the Capital Gains Account would be chargeable to tax as per the Income Tax Slab Rates.
Withdrawl from Capital Gains Account Scheme
The amount deposited in the Capital Gains Account can be withdrawn by making an application in Form C. (Download Form C). The amount so withdrawn has to be utilised within 60 days from the date of such withdrawl and only for the purpose of such withdrawl. The unutilised amount should be re-deposited immediately.
For subsequent withdrawl, the application is required to be made in Form D by detailing the manner/purpose for which the previous withdrawl has been utilised. (Download Form D).
Many Banks don’t issue any cheque book for the capital gains account and amount as the amount is to be withdrawn not using a cheque but by furnishing an application in Form C/ Form D.
Transfer and Conversion of Capital Gains Account
- A depositor, if he so desires, may apply for transfer of his capital gains account, from one deposit office to another deposit office of the same bank.
- A depositor, if he so desires, may also apply in Form B (Download – Form B) for transfer of a part of or all the funds from Type A Account to Type B Account and vice-versa.
- A depositor may also convert the whole of his Type A account into Type B Account and vice-versa.
- If a request has been received for transfer of amount from Type B to Type A and vice versa before the expiry of the specified period for which the deposit was made, such request shall be treated as premature withdrawl of amount.
Other Features of Capital Gains Account
- Only Individuals and HUF are allowed to open capital gains account.
- The amount deposited in the Capital gains account cannot be offered as a Security for any Loan/ Guarantee.
- The Interest on such account is not tax-free and TDS is also liable to be deducted from such account as per the provisions of the income tax act. (Recommended Read: Tax on Interest Fixed Deposits, Tax on interest on savings account)
- The taxpayer can also appoint nominees to this account by making an application in Form E. (Download Form E). Such nomination can also be varied by making an application in Form F. (Download Form F)
- To close the Capital Gains Account, an application in Form G is required to be made. (Download Form G). In case of the death of the depositor, such application would be required to be made by the nominee/legal heirs in Form H. (Download Form H).
- The approval of the income tax officer who has the jurisdiction of the depositor is also required at the time of making an application for the closure of the account.
If the amount deposited in the capital gains account is not utilised for the specified purpose before the expiry of the specified time, the amount of capital gains not utilised would be chargeable to tax as capital gains in the financial year in which the time period expires.
e-Book on Capital Gains Tax on sale of Real Estate Property
There are various sections which govern the taxability of Capital Gains on sale of Real Estate Property. Moreover, there are certain exemptions as well which are allowed to be claimed and in some cases the amount is also required to be deposited in the Capital Gains Account.
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1. Computation of Capital Gains
2. Tax on sale of Inherited Property
3. Tax on sale of Under-Construction Property
4. Sale of Property below Circle Rate/ Stamp Valuation Rate
5. Capital Gains Exemptions on sale of Property
6. TDS on sale of Property
7. More than 40 Comprehensive Examples
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