In this article the author discusses concept of Capital Gain Account Scheme. This article will cover types of accounts, banks in which we can Capital Gain Scheme account, how to open the account, how to withdraw money from this account and how to close the account.
Mr Chaudhury has just sold his old ancestral house for a lump sum consideration of Rs.20,00,000. He has now set his eyes on a new apartment which is due for possession within the next two years. Mr. Chaudhury is in a dilemma, he is aware that the amount he has received is a Capital Gain in his hands and is liable to tax. His intention is to use this fund towards paying for his new abode. What are his options?
The Income Tax Act of India had foreseen such an eventuality and has thus launched the Capital Gains Account Scheme (CGAS) in 1988. As per the provisions of this scheme, Mr Chaudhury can park his funds in this account and keep them outside the ambit of taxation if he opens the Capital Gains Account within the last date of filing his income tax returns. Thus, assuming that he made the sale in the financial year 2013-14, Mr Chaudhury has to open the account and deposit the unutilized sum by 31st July 2014. In fact as per the provisions of the act anyone can save tax on Long Term Capital gains provided:
♦ A residential property is purchased within 2 years of the sale having been effected.
♦ A residential property is constructed within 3 years of the sale having been effected.
Modalities of Capital Gains Account Scheme?
Having come to know about this scheme, Mr Chaudhury is feeling relaxed, but he still needs to know more before he can actually accomplish his primary task of saving tax on Capital Gains.
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.
1. Capital Gains Account – Type A – Savings Account:
This is like a normal savings account and the interest payable on this account is the same as the rate of interest paid on any normal savings account by that particular bank.
2. Capital Gains Account -Type B – Term Deposit Account:
This resembles a fixed deposit account, wherein the amount is deposited for a fixed period of time. The interest rate on this account is equivalent to the interest paid on fixed deposits by the bank. As Type B accounts are same as Fixed Deposits Account, any withdrawal from this type of account attracts a penalty for pre-maturity withdrawal.
Interests earned from both the accounts are liable to be taxed and attract TDS.
If Mr Chaudhury has to make the final payment for his apartment at one go then he would be better served by opening the Type B account. For those who are constructing a house, Type A account would be a better option as this would provide the flexibility of multiple withdrawals.
Every depositor who is desirous of opening an account or accounts, as the case may be, under this Scheme for the first time, shall apply to the deposit office in Form A in duplicate.
Further, the amount of deposit payable shall be made by the depositor either in cash or by crossed cheque or by draft along with the application.
In the case of deposit under account-A, the deposit office shall issue a pass book to the depositor wherein all amounts of deposits, withdrawals, together with interest due, shall be entered over the signature of the authorised officer of the deposit office.
In the case of deposit under account-B, deposit office shall issue a deposit receipt wherein the principal amount of deposit, date of deposit, date of maturity of deposit, shall be entered over the signature of the authorised officer of the deposit office.
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. 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 account holder will retain one copy and return the other copy to the tax payer.
The amount so withdrawn needs to be utilized within 60 days from the date of such withdrawal and only for the specific purpose for which such withdrawal was made. The unutilised amount has to be re-deposited immediately.
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.
The various subtleties associated with the Capital Gains Account Scheme have been demystified and discussed threadbare in the hope that individuals like Mr Chaudhury can now confidently go ahead and transform their realty plans into reality.
The author is Ramalingam.K an MBA (Finance) and certified financial planner. He is the Director & Chief Financial Planner of holistic investment planners (www.holisticinvestment.in) a firm that offers Financial Planning and Wealth Management. He Can be reached at [email protected]
(Republished with Amendments)