If a taxpayer earns any profit on sale of assets then such gain is taxable at special rates prescribed under income tax act 1961. The Income Tax Act, however provides options to save taxes on these capital gain by making investments under specified sections of income tax act.

In order to save taxes on profits earned on sale of assets, the taxpayer is required to make the gain or sales consideration invested in specified modes (for tax savings purposes) before due date of filing of income tax return. If the taxpayer fails to get the amount invested before filing of Income Tax Return, then he or she can put the unutilised amount under capital gain account scheme.

Note: Detailed article on capital gain account scheme (CGAS) can be read at https://taxguru.in/income-tax/capital-gain-account-scheme.html

Practical Intricacies Involved in withdrawal of funds from Capital Gain Account Scheme:

How do I withdraw from Capital Gain Account Scheme (CGAS)

Depositor can deposit unutilized amount in either Type A account or Type B Account, in order to withdraw the funds, the depositor is required follow the below mentioned procedures:

  • Type A Account:

A depositor may make an application in Form C for withdrawal together with passbook to the bank, on receipt of application the banker will allow the withdrawal and will mention the amount withdrawn in passbook.

Further if the withdrawal request is subsequent request, depositor shall also submit filled in Form D mentioning the utilization of funds withdrawn earlier.

* The banker may ask for copy construction contract (in case the taxpayer claims that earlier withdrawal were utilized for construction) or paper of property where the taxpayer claims that the amount was utilized for purchase of property or land).

* Withdrawal in cash is not allowed, if the amount is exceeding INR 25,000 in aggregate.

  • Type B Account:

In this case the depositor shall firstly apply to transfer the amount to Type A account (normal account), further if the withdrawal from Type B account is before expiry of specific period then the same shall be treated as premature withdrawal and be liable to penal interest.

Further the bank has right to refuse the depositor to withdraw any amount lying in his account, in case of failure on his part to furnish all the details as required (such as Form D).

Banks where deposits can be made under CGAS

You are allowed to open CGAS account only if you’re unable to invest the amount of gain or sales consideration before the due date of filing of Income Tax Return. The CGAS 1988 allows to open account in specified 28 banks, these banks include State Bank of India, Bank of Baroda, Punjab National Bank, etc.

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 specified 28 banks, no other bank is authorized to accept the deposit under Capital Gains Accounts Scheme.

Compliances to be done during the time amount remain in CGAS

In most of the cases, the taxpayer asks about the compliances they need to do or perform, during the period the amount remains in bank account opened under capital gain account scheme.

During the period amount remains in capital gain account scheme, the taxpayer is required to do nothing. However, if the amount remains unutilized after expiry of prescribed period of time, then the amount not so utilized shall be charged as Capital Gains of the year in which the prescribed period expires.

Treatment of Interest Income Received under CGAS

Interest from capital gain account scheme has nothing to do with the provisions relating to taxation of capital gains.

It is taxable in the year in which it is due and credited in the assessee’s account as income from other sources.

Approvals required to withdraw the deposited amount or to close the account

In order to close bank account under CGAS, the depositor is required to get approval from Jurisdictional Assessing officer.

The depositor shall make an application in Form G with the approval of Jurisdictional Assessing Officer, and the bank will transfer the balance amount if any to the credit of any bank account of the depositor.

In case the depositor dies, then the Nominee (if the nomination is in force) or legal heir (if there’s no nomination) shall file an application in Form H with the approval of Jurisdictional Assessing Officer for closure of account to the concerned bank.  On receipt of application the bank will transfer the balance amount to the credit of any bank account or nominee or legal heir.

Taxability of unutilised deposit under the Capital Gains Accounts Scheme, 1988 in the hands of the legal heirs of the assessee

  • Under sections 54, 54B, 54D, 54F and 54G of the Income-tax Act, 1961, capital gain is not chargeable to tax if the amount of capital gain or net consideration has been utilized for specified purposes by the Assessee within the stipulated period laid down in the relevant section. These provisions also provide for the deposit in specified Banks, etc., of the amount of capital gain which is not utilized by the Assessee for the acquisition of new assets before the date of furnishing the return of income under section 139(1). The amount of capital gain already utilized for the acquisition/construction of new asset together with amount deposited is deemed to be the cost of new asset and, consequent­ly, this amount is not chargeable to capital gain in the year of transfer of asset. The provisions of sections 54, 54B, 54D, 54F and 54G further provide that if the amount deposited is not utilized wholly or partly for the prescribed purposes, within the period specified, the amount not so utilized shall be charged under section 45 as the income of the financial year in which the period of two/three years (as prescribed in the relevant section) from the date of transfer of the original asset expires.
  • A question has been raised regarding the taxability of the unutilized deposit amount in the case of an individual who dies before the expiry of the stipulated period.
  • The matter has been considered by the Board and it is clarified that in such cases the said amount cannot be taxed in the hands of the deceased. This amount is not taxable in the hands of legal heirs also as the unutilized portion of the deposit does not partake the character of income in their hands but is only a part of the estate devolving upon them.

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  1. Sandeep says:

    Hi, In case of unutilised amount withdrawal by the nominee, you mentioned that Board has clarified that no tax will be levied in the hands of nominee. Can you please share if there is any circular or notification in this regard.

  2. Raj says:

    Hello Sir/Madam !
    A small general query regarding LTCG fund utilization on account of residential house sale.
    1) I sold my house (in Hyderabad) in 30 June 2021 and had a LTCG of Rs 1.56 Cr.
    2) I have deposited it in SBI LTCG account, at Hyderabad branch
    3) Bought a flat in Hyderbad and registered it withdrawing from my LTCG funds at SBI for Rs 1.38 Cr
    4) For the balance Rs 18 lakhs ( not accounting for interest accrued), have submited the proposal for fixed woodwork and interior work, and have got the SBI to issue additional Rs 2 lakhs towards this (as advance payment)
    5) SBI branch manager has now asked me to get NOC from IT AO for withdrawing additional funds.

    In lieu of the above points, I have the following questions”
    (a) Given my PAN card is in Bengaluru jurisdiction, whom should I contact here in Hyderabad to get the NOC for IT AO
    (b) What documentation I have to give
    (c) Lastly, when do I have to submit the NoC from IT AO

  3. Pankaj Gulati says:

    hello sir
    a person invested a certain sum in capial gain account scheme and has not withdrawn any amount even after the expiry of 3 years from the date of investing due to his poor health and also couldn’t file his ITR. That person then dies and his legal heir files for release of funds from the CGAS. Will this withdrawal still remain exempt from tax ? Please note that in this case the assesssee dies ‘afrer’ the expiry of stipulted period.

  4. rajat bagadthey says:

    Dear Sir,
    Please clarify on the following :
    1. Bank is insisting to produce copy of the sale deed in order to open Capital Gain saving Bank Account. Is it required to produce sale deed at the time of opening Capital Gains Account ?
    2. Cash from the proceeds of the sale must be deposited before filing of the Tax Return for the year : whether date to be taken in 31st March or 31st July ?
    Thanks & Regards

  5. Vikas says:

    Sir, I purchased residential plot in the year 1990 & sold it in year Dec.2021.The entire sale proceed of Rs.4. lac was deposited in capital gains account scheme. Now I come to know that there’s no capital gains out of above transaction. My income is also below Rs.2.50 lacs. Now please advise how can I withdraw amount from capital gains account

  6. R. Veeramani / Lakshmi Veeramani says:

    I am a Sr. citizen, having deposited the proceeds of sale of my house property in capital gains term dep account. Now I am purchasing a new house and requested the bank to transfer the amount to the builder as an advance payment. As per request of the bank for a demand letter from builder, I have submitted the same alongwith the draft copy of the agreement (as they do not require original) . On receipt of the same, the bank now insist that only 80% of the amount will be transferred as the agreement is not registered. Sir, u will appreciate that the registration will be possible only after making full payment for which I am simultaneously applying a loan. The bk says it is their policy to transfer only 80%. Kindly advice me accordingly as I was not briefed about these at the time of op the account and I am also told that the interest is still to be credited even after 4 months .

  7. Alias K Kurian says:

    I have invested the full amount got by sale of a house property in CGAS . Actual capital gain is lower than this amount. Is it possible to tranfer the extra amount from CGAS to normal account.

  8. K K Grover says:

    Sir I want to know about how much is caption gain for the property I purchased in 2001 & sold in Feb 2022. And I spent for finishing of semi finished property

  9. Sumit Das says:

    My father in law has a long term capital gain funds parked in IDBI and the tenure is ending on Oct 2022 but we are unable to utilize for the purchase of any property. Please guide as procedure to withdraw the amount deducting relevant taxes and then gifting the same to married daughter for property purchase in her name.

  10. Harnisha Vithalani says:

    Can I set off Short term or Long Term Capital losses from sale of shares against unutilized amount from CGAS account which is liable to capital gains ?

    1. CA Rohit Tiwari says:

      In most of the cases account opening date and date of the deposit remains the same, the period will be calculated from the day you put your funds in CGAS

  11. S N RAMANATH says:

    I am constructing a house utilising the amount in Capital gains account. Work has been allotted to a Contractor. Will be it okay if the Contractors certificate is furnished to the Bank towards work done at the time every withdrawal from the Account? The contractor will have materials at his disposal and utilises the same for construction of the house. He has promised to provide bills wherever purchased for submission to the bank.

  12. naresh gupta says:

    indeed good article. I need a clarification i.e. in case capital gain amount is invested for purchase of a flat where purchase consideration was to be paid in instalments over a period of 18 months by which time construction was to be completed. However project was delayed, and the part amount deposited in capital gain account was not utilized/ not demanded by the builder. Liability towards builder persist as full amount is to be paid to him. what shall be tax implication in such cases.

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December 2023