May 02 , 2013
Long term capital gains tax can be avoided by investing either the profit or sales proceeds in buying or building a residential property. But from a practical point of view investing in good property is time consuming and you might not be successful in identifying and buying property in a few days or months' time. Here the Capital Gains Account Scheme (CGAS) comes to your rescue. If you are unable to buy or build new house before due date of filing income tax for the year of sale of a capital asset you can deposit the amount in a CGAS.
What is Capital Gains Accounts Scheme, 1988
Capital Gains Accounts Scheme launched in 1988 is an account you open with an authorized bank where you can deposit the money from long term capital gains which will be used for building or buying a house to avail capital gains tax exemption under section 54 or 54F of the Income Tax Act.
For instance imagine you sell your house in 2013 and earn profit of Rs 20 lakhs. Under section 54 you can get exemption on capital gains tax for this by investing the capital gain (Rs 20 lakhs) in buying a house in 2 years of sale or building a house within 3 years of sale. But unless you actually do this before due date of filing tax returns you would be liable to pay tax in the same assessment year and claim refund after actual utilization of the money. This is cumbersome business. To avoid this you can instead deposit the amount in CGAS.
Banks offering Capital Gains Account Scheme
Not all banks have this scheme, there are some 28 banks nominated by the government for this purpose. They are State Bank of India, State Bank of Bikaner, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra, State Bank of Travancore, Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, UCO Bank, Canara Bank, United Bank of India, Dena Bank, Syndicate Bank, Union Bank of India, Allahabad Bank, Indian Bank, Bank of Maharashtra, Indian Overseas Bank, Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank and Vijaya Bank. You can open CGAS account from any branch of these banks except rural branches.
Types of CGAS deposits
Sections 54 and 54F have provisions for using the capital gains amount within up to 3 years. So there are 2 types of deposits in Capital Gains Accounts Scheme.
Deposit Account A: This is a savings account and withdrawals can be made any time.
Deposit Account B: This is a term deposit account. You can choose between cumulative and non-cumulative deposits.
Deposit can be moved from one type of account to the other by submitting application for the same. But if transferred from Account B to Account A prematurely then normal penalty rate will apply. Initially you can make deposit in either Account A or Account B or both.
Interest and more feature of CGAS
Interest rate on deposits will be same as applicable in regular savings deposit and term deposit. Interest on your deposit is not tax free. Unfortunately the interest cannot be withdrawn, expect for the intended use of CGAS.
CGAS can be transferred from one branch to another within the same bank.
Capital Gains Accounts Scheme cannot be placed as collateral for any loan.
Withdrawing from Capital Gains Accounts Scheme
Withdrawal can be made only from Account A. You can utilize the withdrawn amount from Capital Gains Accounts Scheme only for buying or constructing new house. A declaration is to be submitted in Form D stating how the withdrawn amount will be used for the intended purpose. Once withdrawn it has to be utilized in 60 days. If anything is unutilized it must be re-deposited in account A.
If withdrawal exceeds Rs 25,000 the bank will issue crossed DD in favour of the person to whom you intend to make payment to. Any amount which is unutilized before the end of three years will be treated as capital gains for the year in which the 3 years expire.
Closing Capital Gains Account Scheme
If you wan to close the account for any reason, you need to submit application at the bank in Form G along with Pass Book or Receipt. Your application must be approved by your income tax Assessing Officer. Once you submit application for closure the bank would forward it to him.
Remember that in the year you close the account (or when 3 years are completed, whichever is earlier) you would have to pay Capital Gains Tax for the entire amount in the account.