Capital gains arise when the consideration received on transfer or sale of a property is more than its indexed cost. The amount of capital gains that is not appropriated by an assessee towards the purchase of another property within one year from the date of transfer of the original property, or that is not utilised by him for the purchase or construction of a new property before the date of furnishing the return of income, should be deposited by him in a specified nationalised bank. The amount should be invested in a ‘Capital Gains Account Scheme’ under the Capital Gains Account Scheme, 1988. The scheme is applicable to all assessees having capital gains. The deposits may be made in one lump sum or in installments at any time. The amount should be deposited before the due date for filing income tax returns.

Who are eligible to take the advantage? – Mainly, the advantage of Capital Gains Account Scheme can be derived by individuals and Hindu Undivided Family. To be more precise, all those tax payers who would like to invest in buying a residential property or in constructing a residential property so as to save tax in respect of long-term capital gain can find much advantage in this scheme known as Capital Gains Accounts Scheme 1988.

Before analysing the salient features of this scheme, it may be recalled here that to save tax on capital gain, various provisions are contained in the Income Tax Act, 1961 whereby if investment is made within two years from the date of sale one can save capital gain tax in respect of long-term gain, especially if the investment is made in acquiring another residential property.

Similarly, if the tax payers were to construct a residential property then the time period for completing the construction is within three years from the date of sale. Now, in between comes the role of Capital Gains Accounts Scheme.

All those tax payers who are taking advantage of the above mentioned schemes of making investment in residential property are advised to take advantage of the Capital Gains Accounts Scheme, especially if they are not able to make investment in residential property by the last date of filing the income tax return.

For example, if a person derives long-term capital gain on April 10, 2010, in that event he must make the investment in acquiring new residential property within two years from the date of sale or when the said property is proposed to be constructed then within three years from the date of sale.

However, there is also a condition that if the tax payer is not able to buy or construct the said property by the last date of filing the income tax return, in that event the amount has to be deposited in the Capital Gains Accounts Scheme. For example , as mentioned above, if the property is sold on April 10, 2010, the tax payers can buy or construct the property by July 31, 2011, which happens to be the last date of filing the income tax return.

In a situation where such purchase or construction is not completed by July 31, 2011 in that event the money must be deposited on or before July 31, 2011, that is, the last date of filing the income tax return in terms of the Capital Gains Accounts Scheme.

List of Banks  who can Accept Deposit – The account under Capital Gains Accounts Scheme cannot be opened in all the branches and with all the banks. The government has identified the following 28 banks to accept the deposit under Capital Gains Accounts Scheme 1988.  These banks are: State Bank of India, State Bank of Bikaner & Jaipur, 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 & Vijaya Bank. All branches of these banks except the rural branches are authorized to receive the deposit and maintain account under Capital Gains Accounts Scheme, 1988. Other than the above, no other bank is authorized to accept the deposit under Capital Gains Accounts Scheme.

Account Type Under Capital Gains Accounts Scheme- Under the scheme there can be two types of accounts.

Deposit Account A: This account is like a savings deposit account. Withdrawals may be made from the account from time to time, subject to other conditions of the scheme. This account is suitable for assessees who are planning to construct a house over a period of time.

Deposit Account B: This account is like a term deposit that is payable after a fixed period of time. The interest earned on the deposit may either be withdrawn periodically or it may be reinvested.

In order to open the account, an assessee must fill up the prescribed application form in duplicate. Further, the type of account – A or B – is to be specified. In case Deposit Account B is opted for, it has to be specified whether the account will be cumulative or non-cumulative. The proof of such deposit should be attached with the income tax returns.

Both the accounts will be eligible to interest as per the guidelines of the Reserve Bank of India. Moreover, a depositor may make or change nominations to the account by filling in the relevant forms.

The amount can be utilised in accordance with the scheme which the Central Government may frame. The amount withdrawn should be utilised for the purpose of purchase or construction of a house.The amount withdrawn should be utilised for the purpose within sixty days of the withdrawal. Any unutilised amount should be redeposited in Deposit Account A.

The amount already utilised by an assessee for the purpose of purchase or construction of a new property together with the amount deposited will be deemed to be the cost of the new property. In case the amount deposited is not utilised wholly or partly for the purchase or construction of the new property within the period specified, then the unutilised amount will be charged as income of the previous year in which the period of three years from the date of the transfer of the original property expires.

Further, an assessee will be entitled to withdraw the amount in accordance with the provisions of the scheme.

The withdrawals from Deposit Account A can be made through a prescribed form. In case of Deposit Account B, a depositor will first have to transfer the amount to Deposit Account A,and then make the withdrawal. The amounts can be transferred from one branch of a bank to another branch of the same bank only. A depositor may close the account with the approval of the assessing officer.

Forms C and D – Similarly, it is possible to convert the deposit Account B to the deposit Account A. As and when the money is required to be withdrawn for the purposes of making payment for the residential property, the assessee shall apply in form No C.  After receiving the application the bank shall permit the withdrawal of the amount. It may also be noted here that where the amount of withdrawal exceeds Rs 25,000, the bank will make the payment by way of crossed demand draft drawn in favour of the person to whom the depositor intends to make the payment.  Tax payers should also note that other than the initial withdrawal later on when the withdrawals are made by the tax payers, they shall furnish in Form No D in duplicate, the details regarding the manner and the extent of utilizing of the amount in respect of the immediately preceding withdrawal. The bank after receiving two copies of Form D from the accountholder will retain one copy and return the other copy to the tax payer.

Forms E and G- The scheme further provides that the amount which has been withdrawn should be utilized for purchase or construction of the property within 60 days from the date of such withdrawal. The facility of nomination is also available to the deposit holder by filling up Form No E.  Finally, when the property has been purchased or the construction has been completed and now the tax payer desires to close his Capital Gains Account Scheme then he shall make an application with the approval of the assessing officer. The application for closure of the account will be in Form G. Whenever you are contemplating to make a deposit in respect of Capital Gains Account Scheme, either by way of a savings account or a fixed deposit account , then please remember that you do not open the normal savings bank account or a normal saving bank deposit but specifically fill up No A and then make the deposit with the concerned bank under the Capital Gains Accounts Scheme.

Opening a bank account for Capital Gains Account Scheme– Once the deposit is made by you either in the savings account or in the fixed deposit account, please ensure that it is clearly mentioned in the account opened that it is for Capital Gains Account Scheme. A large number of tax payers commit the mistake of just opening a bank account with a bank to save capital gains and later on use the money for buying or constructing the residential property.  But please do remember that the income tax law very specifically provides that the money which has not been used for buying or constructing a residential property, such money should be kept exclusively under Capital Gains Accounts Scheme under a separate bank account in terms of Capital Gains Accounts Scheme.  Also do remember that the deposits in these accounts can be made in one lump sum or in instalment.

Things to Keep in Mind

  • CGAS does not allow any withdrawals, except for the specified purpose (of buying the house), even of interest. More, the investor is required to pay tax on this interest (to which he has no access) on an accrual basis out of his other income.
  • Even if the sale is effected in, say, the first month of the financial year (say, April 2011), the taxpayer may deposit the amount in CGAS on the last date for filing returns. In other words, he can freely utilise this money for 15 months (April 2011 to July 2012) as he likes.
  • We have already discussed the fact that if the amount is not utilised wholly or partly for the desired purpose, within the specified period, the unutilised amount shall be treated as capital gains of the year during which the specified period expires.

(Republished with Amendments)

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91 responses to “Capital Gains Accounts Scheme – How to open / Tax Benefits”

  1. n n parekh says:

    natubhaiparekh@re
    diffmail.ciom
    i have opened a capital gain account in my name one name now can it be possible to add the name of may son in this account .. my age is 84 tearsnnparekh

  2. srikanth says:

    Goodday.Pls clarify last date for opening Capital gains scheme account if property sold on 18th Dec 2017 ( date of sale deed -18.12.2017)

  3. ruby says:

    Which bank is better to open Capital gain account A. Many bank branches does not know the procedure

  4. Pushkar Bhatt says:

    Sir I hv sold an ancestral land and want to invest taxable amount in house property and balance in baonds…but erroneously I have deposited entire 80 lacs in cgas whereas 60 lacs was meant for buying property and balance 20 lacs to invest in purchasing nhai exempt bonds. But since in cgas 1988 it’s mentioned that whatever amount deposited in cgas account can only be utilised to purchase property I am in a dilemma…how can I use 20 lacs deposited in cgas ac for purchase of nnhai exempt bonds without attracting tax on this withdrawal??? Pls help urgently

  5. RAVI KRISHNA IYENGAR KRISHNA IYENGAR says:

    Dear Sir,

    You have not covered the case of LTCG wherein the amount i finalise after indexed values is put in govt infrastructure bonds straight away upto the tune of rs. 50 lakhs. the balance amount i calculate IT at 20 % and pay the IT. do is still need a CGAS to be opened in a bank?

  6. Kumar says:

    My father property sold on july 2016 and got my share and immediately put in fixed deposited. I am not aware of captial gains account. Till now in fixd deposit.
    Please suggest now, how to save tax?
    Please kindly advise.

  7. Vaibhav says:

    what are the implications if an assessee has deposited the amount in savings account instead of CAGS and return for the FY is yet to be filed ? Will it be taxable as LTCG ?

  8. vinay says:

    sir, i have to sell a property but the buyer was making a payment in advance and the final payment will be made in 4 to 5 months. the advance which received was deposited in my normal saving a/c or to open under LTCG in bank. later i want to invest the full amount under the scheme of 54EC. please advice

  9. VED PRAKASH says:

    i have purchased a property in year 2000 and sold the same in august,2017.how can i save capital gain tax without purchasing a new property

  10. VED PRAKASH says:

    I HAVE PURCHASED A PROPERTY IN YEAR 2000
    AND SOLD IN AUG.2017.HOW I CAN SAVE CAPITAL GAIN TAX WITHOUT PURCHASING A NEW PROPERTY

  11. puneet says:

    I have an Capital gains account in SBI. Which form is required to be filled for partial withdrawal, complete withdrawal ?
    also guide what all documents are required by the bank to allow withdrawal and which income tax office can approve the closing of bank account.

  12. Mohammed says:

    Capital gain account was opened in a nationalized bank by my father in law aged 75, and nominee is his son aged 40, and it was utilized for constructing a building for their wards for their own use,part payment was issued to build almost 50% of the amount,now my father in law was expired 3month back,we got legal heir certificates,and no objecting certificate,to receive the balance amount to compete the project,but the bank is delaying for disbursing the amount,sir what is the procedures to get the amount earlier,we are residing at chennai,plz reply

  13. Sivanarayanan Sekar says:

    Can I withdraw for the purpose of investing to purchase a second hand house ( approximate 15 years old)

  14. Sivanarayanan Sekar says:

    Can I withdraw for the purpose of buying a second hand house (approx 15 years old )instead of new house please

  15. Jai Singh says:

    i have sold a flat tin Mar 17 which was bought about 20 years ago.
    I intend to deposit the amount received from the sale in a capital gain account scheme.
    Can somebody please guide me how much do I depoisit in the capital gain account scheme, the complete proceeds or only the capital gain on the sale.

    • vijayaraghavan viswanathan says:

      I intend to invest the entire proceeds from sale of property to buy a new house. My question is whether it is enough to deposit only capital gain in capital gain account?

  16. Jai Singh says:

    I am planning to sell my property(Flat) for Rs.(47 Lakh) before Mar,17 which I bought in the year 1996 for Rs.(4 Lakh). I will be buying a flat of value around (90 lakhs) within a year or next year. Should I open Capital Gain Account immediately or at what time. Please suggest

  17. Ravindra babu says:

    I have deposited the money as FDR’s under “Deposit account-B” for 12 months. The bankers have renewed the deposits only after 9 months on the expiry of the FDR’s (after12 months of deposit) for a further period of 12 months. Under the INTEREST’s as per Capital Gains ccount Scheme 1988, the interest {8 (1)} at such rate as may be specified by the RBI, from time to time…………
    Here the bankers have not informed nor auto renewed the deposit which lead to loss of interest for a period of 9 months. Please confirm whether the bankers are liable for the non payment of the right interest. Is it not amounting to Service Deficiency to the customer

    • a k madhok says:

      mr. Ravinder babu j
      Same is the case with me.
      the bank did not renew my ltcg FD for full one year
      after the first year was over.
      they have kept the amount for one year and is refusing to pay me any interest for that period on citing reason that fd was not renewed so u get ZERO interest for full one year.
      please let me know what is the statatus
      of yr ltcg fd which u could not get renewed.
      wating for yr reply.
      thanks

  18. Vedpal Singh says:

    Hi Ranganathan,

    I want to dis invest amount in CGAS a/c to buy another property, and want bank to do RTGS directly to seller, but bank has refused to do RTGS and they do DD only. I will have to pay huge commission to get DD which i want to avoid. I feel that bank is arm twisting me to purchase a DD. Would you pls tell me which was your bank that had no issue with RTGS.

    Thanks,
    sindhu.vedpal@gmail.com

  19. Surbhi says:

    Is any relaxation is available if capital gain amount is deposited in assesse saving account instead of capital gain scheme account

  20. Sachin Bharti says:

    I am planning to sale my property for Rs. 8200000 (82 Lakh) which I brought in the year July-2010 for Rs. 37,21,718.00 when its govt. value was 29, 35,000. I will be buying another property of value around 1,40,00000.00 (1 cr 40 lakhs approx) in immediately within a year or next year. Do I need to pay any capital gain on the difference amount of my purchase & sale price.

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