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)

More Under Income Tax

Posted Under

Category : Income Tax (28540)
Type : Articles (18522)

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

  1. SANJEEV SRIVASTAVA says:

    i am invest money 9 lacs in acre buy back scheme in 2013 for 2.5 years guaranteed return amount rs 14.25 lacs please inform about income tax of above intrest

  2. Geetha Mouli says:

    where to find the answers to these questions. I am new

  3. nand kishor varma says:

    I HAVE SOLD MY FLAT IN KOLKATA IN JUNE2016 FOR RS.17LACS WHICH WAS PURCHASED IN JANUARY 2005 FOR RS.6.85LAC & INCURRED RS.3LACS ON RENOVATION.NOW i want to purchase a portion of property owned by my son in mumbai with that amount of money received.Will iI have to pay any tax now if I pay the full amount to my son.plz.advice

  4. Vinay Oza says:

    I SOLD MY FLAT IN APRIL 2016 AND WANT TO PURCHASE ANOTHER NEW FLATS WITHIN 6 MONTHS BEFORE FINANCIAL YEAR 6-17 SHOULD I OPEN CAPITAL GAIN TAX SAVINGS ACCOUNT?

  5. Ayush Sarda says:

    Can I utilise the amount received from Sale of Capital asset in contruction of 2 additional floors on my existing house. Well in this case will I be able to claim exemption?

  6. Abhijeet A says:

    Hi

    I am planning to sale my property (land) and wanted to buy a flat immediately in next 1 year. I am currently living in a rented house and this is going to be my 1st flat / residential property. Also note that, i am looking for a under construction flat for which i will receive possession in next 2 years. I am planning to use money received through land to make payment for this flat as and when construction progress. I am already having an saving bank account in SBI. Do i still have to open CGAS account considering above situation.

    Kindly guide.

    Thanks and Regards,

    Abhijit Arankalle
    9372436187

  7. Ashok says:

    Hi,

    Need your reply urgently.

    We bought two plots in 2006 and from which one of them we sold in Dec2014 and the other one we sold in Feb2016. After indexation the capital gain tax is 21 lakh including both.
    Meanwhile in May 2015 i have done an agreement for a under construction flat for 40lakh.

    Need your help to understand if i can save capital gain tax arising from plots, by clubbing both the gains and buying one under construction flat.

    Thanks in advance, will appreciate your kind help.
    Kumar

  8. satish pandey says:

    I have sold my flat in 6th april-2015. we should to invest in capital gains accounts scheme 1988 for tax savings. What is last date of deposit 6 april-2016 on or before 31 july-2016

  9. chandra says:

    Hi ,
    We have sold our property three years back .
    the money was deposited in Capital Gain account in mothers name. but after three years we coudnt utilze the money.
    Now mother is 82 and we have no plans to purchase the house.
    Now that if we want to withdraw and close the account , we have to pay 20 % tax.
    Is there any way to save the tax now?

    • ajit padia says:

      I invested amount in capital gain scheme, now three years are over but i could not purchase property now can I utilise this fund for another purpose

  10. Arvind Bhaskar Rane says:

    I have received bad experience in capital gains fixed deposits with central bank of India and I am still struggling to withdraw this fixed deposits amount as there are different opinions while withdrawal of amount once the person who opened account and at maturity if he is not exist or he is expired
    Income tax department is helpless as they don’t have any statutory procedures once person expired before maturity of capital gains fixed deposits account
    Please insure with tax consultant first before going to invest in this capital gains account scheme

  11. Deepak Gupta says:

    Hi,
    I have sold 1 property in Jan 2014 and 1 in Sept 2014. and have deposited the amount of both the considerations in CGAS before 30th Sept 2014 (as i’am covered under Tax Audit).
    Now, in January 2016 2 years from the date of sale is about to get completed and i have not utilised the amount anywhere, neither in purchase of any property nor in construction. So what provisions to i need to follow..
    Do i need to pay tax in Current F.Y 2015-2016 or do I have to Wait for one more year.?
    Kindle Revert me with your valuable reply.

    Thanks
    Regards
    Deepak Gupta

  12. zakkir says:

    I had capital gain by selling my flat an year ago. I deposited the capital gain as 4 different deposits for 6 Lakh each.
    Now for buying a new house, i want to give advance of Rs 6 lakhs and for this i want to withdraw one deposit.
    What is the procedure i need to do to satisfy income tax rules? Will it come under closure or withdraw? For withdraw i udnerstand form c has to be used. For closure, i saw that income tax officer has to approve.

    My question is that if i want to take a part of the deposit for advance, do i need to get any permission from income tax officer?

    • Deepak says:

      For paying the Seller/Builder you only need to apply for payment to be made to him through Form C(Banks usually will prefer to pay directly to your seller/builder from your Capitak Gains account. For closure you need to apply through Form G where Assessing officer’s sign and stamp would be needed.

  13. kalyani says:

    My sister-in-law deposited IRS.14,50,000/- in the long term capital gains for 36 months
    at Canara Bank. Now it has already expired and overdue by 6 months. The banker says that she has to pay IRS.45,000/- as income tax for the matured fixed deposit of IRS.21,00,000/- Kindly let us know whether the income tax comes to IRS 45,000/- My tel no.9886922113

    Regards
    kalyani

  14. Hemanshu says:

    Is this applicable to ESOP ?

    If the sum received from buy back offer of unlisted share can be invested in capital gain accounts scheme ?

    Please guide

  15. CA Mitt Patel says:

    Superb Article. Very Informative

  16. C.P.Uttaqm says:

    I have a residential plot.Now I want to purchase a Builder Floor at Gurgaon.The Builder floor constructed by some Construction company.The Plot Owner has signed an agreement to construct the Three floor at his own cost & after compelition of all three floors, right of one floor for sale will be to construction company & that can be sell by company.During construction we are paying the cost of on floor in installment to construction company.after compelition of the Floor, The one floor will be transfered to me.

    Now let me know that,can we pay the cost to construction company in EMI.

  17. DINESH PANCHAL says:

    CAN WE WITHDRAW CASH FOR NEW RESIDENCIAL HOUSE DEED REGISTRATION FEES FROM CAPITAL GAIN ACCOUNT ?

  18. Jigar says:

    I am a joint owner of my later father house. The house unable to use jointly so that decided to sale out.

    Apart from above I have another residential house.

    Can we save capital gain tax arise on selling of my late father house by extension of my existing house?

    -Jigar

  19. apurba karmakar says:

    valuable information.

  20. CNR Simh says:

    HI

    I had purchased a land in 2005 for 1.9L and sold in 2014 for 12.1L. Based on cost inflation index the gain is around 8L. I am investing this in buying a new apartment. To open a capital gain account, should I invest actual selling amount 12.1L or the net gain which is 8L. Please let me know

    Regards

    • kalyani says:

      My sister-in-law deposited IRS.14,50,000/- in the long term capital gains for 36 months
      at Canara Bank. Now it has already expired and overdue by 6 months. The banker says that she has to pay IRS.45,000/- as income tax for the matured fixed deposit of IRS.21,00,000/- Kindly let us know whether the income tax comes to IRS 45,000/- My tel no.9886922113

      Regards
      kalyani

    • Nikhil says:

      Dear Sir,

      The entire amount of gain is to be invested while opening the account. i.e in your case 8L

    • Vivek says:

      I have sold my ancestral agricultural land in 2017 after approvement of development authority.this land is before 1947.what is my tax liabilty

Leave a Reply

Your email address will not be published. Required fields are marked *