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 before one year from the date of transfer or within two year from the date of transfer of the original property or constructed within 3 years from the date of transfer, 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. Section 54/54F & time limit for deposit/ reinvestment of capital gain

1. Who are eligible to take the advantage of Capital Gains Account Scheme?

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 one year from the date of transfer or within two years from the date of sale/or constructed within 3 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, 2017, the tax payers can buy or construct the property by July 31, 2018 (extended to 31st August 2018 for A.y 2018-19), 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 31st August 2018 in that event the money must be deposited on or before 31st August 2018, that is, the last date of filing the income tax return in terms of the Capital Gains Accounts Scheme.

2. List of Banks  who can Accept Deposit under Capital Gains Account Scheme

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, 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.

3. Account Type Under Capital Gains Accounts Scheme

Under the scheme there can be two types of accounts-

i. 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.

ii. 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(as LTCG) of the previous year in which the period of three years from the date of the transfer of the original property expires.

4. How to withdraw from Capital Gains Accounts Scheme

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.

5. 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.

6. Things to Keep in Mind while opening Capital Gains Account Scheme

  • 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 2017), 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 2017to July 201 For A.y 2018-19 it can be used till 31.08.2018 as the return filing date has been extended) 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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100 responses to “Capital Gains Accounts Scheme – How to open / Tax Benefits”

  1. p m menezes says:

    what is the time limit to utilize the amount kept in capital gain account. when the limit start? whether from date of sale of property or from depositing the amount in capital gain a/c. also please clarify whether the interest accrued can be use for purchase of new property.

  2. vivek says:

    In case assesse withdraw more than Rs.25000 fron CGAS in cash , then who is liable for this mistake ,Is any case avialable regarding to this problem.

  3. Nisha says:

    We sold the property in dec 2012 and deposited profit in capital gains account. At the time we had odentofied the property we wanted to purchase but that deal fell thru. So we paid revised tax on profit and wanted to withdraw money from capital gains account. It has been more than a year and we are still getting run around from income tax office and accountant. Can you please tell us waht is the procedure we have to follow
    Thank you very much for your help
    Nisha

  4. RANGANATHAN M K says:

    We opened CGAS account on 23-10-2013 with deposit of Rs.20 Lakhs. and the same was utilized for purchase of plot and the CGAS money was allowed send to the seller of the property by 29th October 2013 through RTGS facility of the bank. We were not aware that we had close the account immediately. And still balance of Rs.960/ is in the CGAS a/c.

    Also I had by mistake transferred Rs 6 Lakhs from my savings account to my CGAS account in the same Bank instead of sending it to one of my Loan account on 17-09-2014.

    How do i recover that money from CGAS Account?

    Please help us in this regard.

    Thanks,
    Ranganathan

  5. vinod B says:

    what finally happens to the interest earned on closure of account?.
    1. one cannot withdraw it.
    2. one pays tax on it
    3.

  6. nitin bhalerao says:

    It is very useful information to general public

  7. Ramana says:

    I have recently purchased a flat by availing a loan of Rs.10 lakh and the registration is completed. I have another old flat, which i intend to sell now. Can the amount gained from sale of the old flat be adjusted to the loan availed for purchase of the already acquired new flat, to avoid Capital Gain Tax?

  8. B SREENIVAS says:

    Very useful and informative article on Capital Gain Deposit Account Scheme. Thanks a lot

  9. Bhavesh Gosar says:

    Withdrawal of Unutilised fund from Capital Gain Account in Nationalised Bank :

    There was a capital gain on sale of shop on 22.9.2010 & said capital gain was deposited in capital gain account in State Bank before due date of IT return.
    Now after completion of 3 years, said capital gain amount is not utilised for purchase of any residential property.

    What is the exact procedure to withdraw the unutilised capital gain amount which was depsited in capital gain account.
    Only payment of Income tax on said capital gain in current F.Y.2013-14 is sufficient to withdraw the amount from capital gain account.

    Interest credited in above capital gain account was already added in respective year income then any need to pay any further tax on the withdrawal of said interest accrued in capital gain account.

    Kindly reply.

    Thanks in advance.

    • Aditya Vikram says:

      I earned LTCG on 9th June, 2017 on the sale of a Capital Asset . Before which date must I open an LTCG A/C – before 9th June,2018 i.e. one year of sale of the Capital Asset or 31st July, 2018 i.e. last date of filing of I.T.Return?

    • Baidya nath raha says:

      this is very useful for us.

  10. KD Shenoy says:

    I sold a flat in Oct’08, which was purchased in 1984, and deposited the capital gains amount in a CGAS immediately. I utilised only 70 % of the CGAS account for purchasing a new flat whose delivery was taken in Sept’10. The question is whether any advance tax payable on the balance 40% amount in the Q3 or is it sufficient to pay the requisite tax before by the last date of filing return for the AY 2011-12?

  11. Dhara says:

    IDBI is also authorised to accept deposits in the case of Capital Gains Accounts Scheme

  12. Deen says:

    What are the consequences if one does not deposit in Capital Gain Account Scheme within the time limit????

  13. parag says:

    Very good article.

    It is laid down that the assessee has to deposit  Capital Gain amount in specified bank in Capital Gain Account Scheme before filling the return of income..i.e. say upto 31 july. 

    Here suppose in a given case assessee has long term capital gain u/s.54F(transfer of long term assets other than house property) in the month of May 2010, and he does not file his return of income by  due date July,2011 and he also does not deposit the Capital gain amount in the specified Capital gain scheme by July,2011. But he purchased the new Residential House before 31st March,2012 and file his belated return before 31st March,2012.

    What are the consequences? As he does not deposit Capital Gain amount in Specified Capital Gain Scheme. 

  14. MMSingh Dhupia says:

    Can an NRI with CGD Account invest in Canada House Property?

  15. MMSingh Dhupia says:

    Very good and informative article.

    I would however like to know whether the re-investment on property out of CDAS has to be essentially made on property in India only or it can be invested in property out- side India – say Canada, if the account holder happens to be an NRI.

  16. MMSingh Dhupia says:

    Very good and informative article on Capital Deposit Account Scheme.

    I would however also like to know whether the re-investment from CDAS in the property has to be essentially made in India only or it can be invested in property in Canada if the account holder is an NRI.

  17. Himanshu Taneja says:

    Very nice article .. in depth! keep up the good work !

  18. G. Padmanabhan says:

    Request the author to confirm whether Capital Gain B Scheme is still in vogue. Is there a specific stipulation that the interest on fixed deposit cannot be utilised? Can the author arrange to furnish the notification itself with latest amendments?

  19. MANPREET KAUR says:

    GOOD ARTICLE WITH CLARITY ON DIFFERENT ASPECT OF CAPITAL DEPOSIT ACCOUNT

  20. Duke Sekhon says:

    Very informative. Thank you!

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