Different sections are specified under Indian income tax act to provide certain exemption on long term capital gain. These exemptions are available if specified conditions under those sections are fulfilled. One of such condition is to invest the capital gain or net consideration in certain specified investments. If such investments are not possible prior to the due date of filling income tax return then to claim exemption benefits the tax payer must deposit the capital gain or net consideration in a bank account opened under the CGAS.
Following are the list of those sections under which exemption benefits are available;
- Section 54
- Section 54B
- Section 54D
- Section 54F
- Section 54G
A taxpayer who wants to avail the exemption benefit under above sections can deposit the amount of capital gain or net consideration in capital gain account scheme (CGAS) before the last date for filling income tax return (31st July).
Deposit to these capital gain account scheme (CAGS) is not mandatory. A tax payer can claim capital gain exemption if they invest as per the provisions of the respective sections of income tax act under which exemption benefits is specified.
Under capital gain account scheme (CGAS) different banks like IDBI, SBI, Bank of Baroda, CBI, Dena Bank, IOB, Andhra Bank, Canara Bank and ICICI are accepting saving deposits or term deposits from the tax payers.
As a tax payer you will also be getting interest as per RBI guidelines on your capital gain account scheme (CGAS) deposits. Following documents will be required to open an account under this scheme;
- Application form in duplicate – Form A
- Proof of address
- PAN card copy
In addition to the above documents one unstamped HUF letter in case of account is for HUF will be required.
In India all the banks are not recognized to open accounts under capital gain account scheme (CGAS). So you need to make sure that the bank or the branch of the bank where you are opening this account are having necessary approval to open account under capital gain account scheme (CGAS). All rural braches are not recognized to open CGAS account.
Two types of account can be maintained under capital gain account scheme (CGAS);
- Deposit Account A
- Deposit Account B
Deposit Account A
This is a saving deposit account and the depositor will be issued a passbook with all the deposits, receipts in it. Interest on this account will also be received by the taxpayer. The depositor can withdraw money out of this account at any time after the initial deposit in it.
Deposit Account B
This is a term deposit account. Depositor will receive deposit receipt for each deposit. In order to withdraw money from this type of deposit account, the depositor need to transfer this account to “Deposit Account – A” and then can withdraw as per the CGAS provisions.
The taxpayer can deposit in cash, crossed cheques or by draft in lump sum or in installments to this account. But these deposits should be made prior to the date of filling their income tax return for the financial year in which such capital gain arises.
If the depositor opted to deposit the initial amount in cheques or draft then the date of deposit would be the date on which such cheques or drafts along with the application form are received by the bank. Deposit receipt for the money deposited in “account B” should be retained by the tax payer as proof towards exemption for capital gain.
If in case the taxpayer missed or lost the passbook or deposit receipt then with an application to the concern bank, the bank will issue a duplicate passbook or deposit receipt to the taxpayer.
Withdrawal from capital gain account scheme (CGAS)
A depositor having “Deposit Account-A” may at any time after making the initial subscription apply in form C for withdrawal of money. At the time of withdrawal other than the initial withdrawal, the applicant has to submit Form D along with the details regarding the manner and extent of utilization of the amount.
As per the capital gain account scheme (CGAS) you can withdraw more than Rs. 25, 000 through crossed demand draft/pay order/NEFT/RTGS in favour of the person to whom the depositor wants to make payment.
Amount withdrawn from this type of account should be used within 60 days of such withdrawal. The unutilized amount should be again re-deposited in to the CGAS account. In case the withdrawal amount is not utilized and not deposited back within 60 days then you will lose the benefit of exemptions.
To withdraw money from Account-B, the depositor has to transfer the balance amount in Account-B to Account-A and then according to the CGAS provisions they can withdraw the amount.
Closure of Account opened under capital gain account scheme
For closing of the account opened under capital gain account scheme (CGAS), you need to first get an approval from the assessing officer who has jurisdiction over the depositor.
With the approval of assessing officer, the depositor has to make an application in form G to the bank where he has opened up the account under CGAS scheme.
Bank will pay the amount to the depositor including the interest amount by crediting bank account of the depositor.
The nominee or legal heir can follow the same procedure to withdraw the balance amount from such account if the depositor dies.
The unutilised amount left in an account opened under capital gain account scheme, 1988 can not be taxed in the hand of deceased if such individual dies before the expiry of 2/3 years as stipulated in different sections of capital gain exemption.
This unutilised amount is also not taxable in the hands of legal heir as this amount is not of the character of income in their hands.
Other Relevant points
- While opening account in any bank please make sure that it is specified as capital gain account scheme (CGAS) on the application form. Many times it happened that taxpayers have opened account without knowing that the account has not been opened under the capital gain account scheme (CGAS).
- You can not avail loan facility against these deposits.
- TDS deduction from the interest amount will be as per the guidelines of income tax act.