What Every Investor Needs to Know About Capital Gains Account Scheme
Capital Gains Account Scheme launched in 1988; is an account you can open with an authorized bank and deposit the money from long-term capital gains; which will be utilized for buying or building a house for availing the capital gains tax exemption U/S 54 or 54F of the Income Tax Act.
Capital Gains Account Scheme
You can avoid tax on long-term capital gains by investing either the profit or sales proceeds in buying or building a residential property. However, if you are unable to buy or build a new house before the due date of filing income tax for the year of sale of a capital asset, you can invest the amount in a CGAS.
For example, you sell your house and earn a profit of Rs. 20 lakhs. U/S 54 you can get an exemption on capital gains tax by investing it in buying a house in 2 years of sale or building a house within 3 years of sale. But if you fail to do this before the due date of filing tax returns, you would be liable to pay tax in the same AY and can claim the refund after actual utilization of the money. However, to avoid this, you can deposit the amount in CGAS.
Conditions for claiming benefit U/S 54
- The benefit of section 54 is available to an individual or HUF.
- The asset transferred should be a long-term capital asset, being a residential house property.
- Within one year before or two years after the date of transfer of old house, the assessee should acquire another residential home or should construct a residential house within three years from the date of transfer of the old house. In case of a compulsory acquisition, the period of purchase or construction will be determined from the date of receiving of compensation (whether original or additional).
- An individual or HUF can claim the exemption only in respect of one residential house property; and it must be purchased/constructed in India.
If after claiming the exemption U/S 54, an individual sells a new house before a period of 3 years from the date of its purchase/completion of construction. If the new house is sold before a period of 3 years from the date of its purchase/completion of construction, then at the time of computation of capital gain arising on transfer of the new house, the amount of capital gain claimed as exempt under section 54 will be deducted from the cost of acquisition of the new house.
Non-utilization of amount deposited in CGAS
If the taxpayer has not used the amount deposited in the CGAS in respect of which he has claimed the exemption U/S 54 within the specified period; then the unutilized amount will be taxed as income by way of long-term capital gains of the year, in which the specified period of 2/3 years gets over.
There are two types of Capital Gain Accounts: Type 1 & Type 2. Type 1 is like your savings account and Type 2 is like a fixed deposit/term account. You can change the nature of the account. However, interest is not exempted under the income tax act. It is chargeable as per the income tax slab rates. For this account, you will not get chequebook and so, you have to use forms to withdraw money. However, a passbook is issued.
You can open a capital gains account by filling in and submitting Form A along with proof of address, PAN copy, and photograph.
Further remember that, you will need to deposit the entire capital gain funds you receive from your property sale into the CGAS account to get tax exemption. You cannot open a CGAS account with partial sale withdrawals. Further, you can open a CGAS bank account either by paying in cash, cheque or a demand draft as per your choice, and with KYC documents, as in the case of any other account opening.
You can withdraw money from your CGAS account, but only when you need it for the purchase of a property or construction of a house. To withdraw money, you will need to submit a duly filled Form C to the bank, giving details of the purpose of your fund requirements. You need to use the funds from your CGAS account within 60 days for your house purchase or towards construction.
Whenever you file your income tax returns, you will need to furnish a proof of your CGAS bank account to get tax exemption. You should attach a proof along with your ITR form for each financial year.
Things to know about CGAS
- CGAS allows you to park sale proceeds of a property without capital gains tax liability, provided you have bought another property within 2 years of sale or built within 3 years of sale.
- You must open an account under CGAS with an urban or metro branch of any bank.
- To be eligible for this exemption, you must open an account and deposit funds therein before the due date of filing of the seller’s income tax return for the relevant financial year.
- Sellers may open a Type A or Type B account. Type A works like a savings account and is suitable for those constructing a property. Type B works like a fixed deposit.
- You can withdraw from CGAS by submitting an application in prescribed form. You must withdraw funds for payment towards property within 60 days of withdrawal.
- Any unutilized funds lying in the account at the end of the prescribed period will be liable to income tax as capital gains.
- You cannot take any loan on this account.
Banks offering Capital Gains Account Scheme
The Government nominated these 28 banks for this purpose. They are;
- State bank of India
- State bank of Bikaner
- Syndicate Bank
- State bank of Hyderabad
- State bank of Indore
- Andhra Bank
- State bank of Mysore
- State bank of Patiala
- Oriental Bank of Commerce
- State bank of Saurashtra
- State bank of Travancore
- UCO Bank
- Allahabad Bank
- Union Bank of India
- United Bank of India
- Bank of Baroda
- Bank of India
- Punjab & Sind Bank
- Bank of Maharashtra
- Canara Bank
- Central Bank of India
- Corporation Bank
- Dena Bank
- Indian Bank
- Indian Overseas Bank
- Punjab National Bank
- Vijaya Bank
- IDBI Bank
Closing Capital Gains Account Scheme
For closing CGAS, you need to submit an application at the bank in Form G along with passbook or receipt. Income tax officer must approve your application, and only then the bank will close your account. You must remember that in the year, you close the account (or when 3 years are elapsed, whichever is earlier); you would have to pay Capital Gains Tax for the entire amount in the account.