Introduction
The Capital Gain Account Scheme (CGAS) was introduced by the Central Government of India in 1988 as a part of the Income Tax Act. It serves as a tool for taxpayers to defer the tax liability arising from capital gains until the gains are reinvested in specified assets.
Eligibility for CGAS
CGAS is applicable to all taxpayers who are eligible for exemption under sections 54, 54B, 54D, 54F, 54G, or 54GB of the Income Tax Act, 1961. This includes individuals and Hindu Undivided Families (HUFs) who have realized capital gains from the sale of long-term capital assets.
Types of CGAS Accounts
There are two types of accounts under CGAS:
- Deposit Account-A: This is akin to a savings account, allowing for withdrawals by the depositor from time to time.
- Deposit Account-B: This operates as a term deposit, with options for cumulative or non-cumulative returns. Withdrawals from this account type can only be made after the expiry of the specified period.
How to Open a CGAS Account
To open a CGAS account, taxpayers must submit an application in the prescribed form along with necessary documents such as PAN, address proof, and a photograph. The deposit can be made via cash, cheque, or demand draft. The effective date of deposit, for claiming exemption, is the date of deposit of the cheque or draft, subject to realization.
Utilization of Funds
The funds deposited in CGAS must be utilized for the purchase or construction of new property within the stipulated time to claim the tax exemption. If the funds are not utilized within the stipulated period, the unutilized amount is treated as capital gains and taxed accordingly.
Interest on deposit in CGAS account
The interest will be paid at the rate specified by RBI which is currently 7.15% p.a. If the deposit is made under Account A, the interest shall be allowed every month calculated on the lowest balance in the account between 10th day and the last day of the month.
If the deposit is made under Account B on cumulative basis, the interest amount shall be reinvested and in case non-cumulative basis, the interest is payable at quarterly interval.
In case of premature withdrawal from the respective account, there will be penalty of 1% from the interest amount.
TDS shall be deducted at the applicable rates.
Withdrawal from the CGAS account
Individuals holding a Type A capital gains account have the liberty to withdraw funds freely. On the other hand, holders of a Type B capital gains account are permitted to make an early withdrawal only after shifting their funds to a Type A account. Withdrawn amounts should be invested in the designated venture within 60 days, and any funds not utilized within this timeframe should be promptly returned to a Type A account.
Conclusion
The CGAS is a beneficial scheme for taxpayers looking to invest their capital gains into new assets while deferring their tax liability. It encourages reinvestment and aids in the financial planning of taxpayers who have realized capital gains.
Author Bio
I had sold a non-residential property in March 2022 and deposited 25 lakhs in Capital gain account (with a view to reinvest it a flat) after paying tax on the rest of amount. How ever, I could not utilize the amount in capital gain account for purchasing a flat.
Now the question is, if I don’t utilize it for house construction until the end of 3 years which is the maximum time, how much tax I have to pay, also considering I have no other income from regular earnings?
Can I deduct the basic exemption limit as per the old or new income tax slab?
Thanks,