Opening an account under Capital Gain Scheme 1988

You’ve had a Long Term Capital Gain under the respective Section(s) of the Income Tax Act. Now, you must be wondering as to how you will save yourself from the Tax liability arising as a result of Capital Gain. Well, in order to save tax on Capital Gains, you might be required to do the needful depending upon the nature of Capital Gain. Example: Purchase a house within 2 years or construct a house within 3 years from the date of Sale of the property on which Long Term Capital Gain has arisen etc.

But you aren’t sure as to what to do for the time being; thus, here comes Capital Gain Scheme 1988, wherein you need to deposit the respective amount in Capital Gain Account with a Nationalised Bank (28 banks have been designated for the same) on or before the due date of filing of return of income for the relevant year in order to buy time to take your decision as Capital Gains w.r.t. the amount deposited under Capital Gain Scheme will not be subjected to Income Tax if the deposit has been made on or before due date of filing return of Income. The amount deposited under Capital Gain Scheme shall be subjected to Tax only in the year in which the time to buy/construct the respective property expires.

What do you need to do?

There are two kinds of Capital Gain Accounts:

  1. Deposit A, it’s like a simple Savings account wherein you earn interest at the same rates as in the case of Savings account, however, withdrawal from this account is subject to certain restrictions. This kind of deposit makes sense for those who wish to construct a house as withdrawals are allowed, from time to time, for the same from this account subject to terms and conditions.
  2. Deposit B, it’s like a term deposit which earns interest similar to a normal Fixed deposit in that Bank depending upon its tenure. Kindly note that this type of deposit gives you an option to receive the interest in your normal Savings account, however, you need to take this option at the time opening Capital Gain Account Deposit B wherein you need to give your preference as Non-cumulative.

Interest accrued/received on the aforementioned accounts, as the case may be, is subject to deduction of TDS and shall be taxable under the head “Income from Other Sources”.

Form A is required to be filled-in in order to open the aforementioned account(s). You may open both Deposit A and Deposit B accounts by depositing a part of the amount in Deposit A account and the remaining in Deposit B account. Thus, complete the formalities carefully and plan in peace….

(Author Details- CA Sahil Jolly – Jolly & Co. Chartered Accountants, Contact: +91-9999830077, Email : casahiljolly@gmail.com)

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Categories: Income Tax

View Comments (4)

  • Dear Mr. Jolly,

    Please guide that if I have a capital gain of Rs. 5 lacs and I book a flat with a builder under construction (to take 2 years to complete), then in that case if I pay Rs. 1 Lac to the Builder now, then my Question is

    WHETHER I AM FREE TO ENJOY RS. 4 LACS in the way I want or am required to deposit in CGAS ?

  • very grate information, option has given to invest in the house properity with in the two years. mean time allowed to deposit / earn some interest on the deposite.



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