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with passbook to the bank, on receipt of application the banker will allow the withdrawal and will mention the amount withdrawn in passbook.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request is subsequent request, depositor shall also submit filled in Form D mentioning the utilization of funds withdrawn earlier.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. 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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February 2021