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How To Use Capital Gain Account Scheme (CGAS) To Save Tax In India?

Capital Gain Account Scheme (CGAS) is a special bank account scheme where individuals and HUF’s can deposit there long term capital gain (LTCG) temporarily to save tax. Income tax act 1961 says, tax payer are exempt from paying tax on long term capital gain if sale proceeds are utilized for specific purpose within specified time. Like in case of sale of house property, the amount of profit arise is exempted from tax if reinvested either for the purchase of another residential property within 2 years or for the construction of a residential property within 3 years from the date of sale of property.

In true terms, this scheme works for those individuals who have earned capital gain and want to reinvest the sale proceeds for the purchase of another residential property or for the construction of a residential property and amount of sale proceeds is not invested before the due date of filing income tax return. In that case tax payer can deposit money under Capital Gain Account Scheme with a nationalized bank either in lump sum or in installments and attach the proof of deposit with the return to avail the exemption and can utilize the amount for the specific purpose within extended period.

ALSO READ :- Capital Gain Tax Exemption Bonds – Safeguard Your Long Term Capital Gains Under Section 54EC

capital gain account

Lets take an example to make you understand this better :- Mr. Rohit sell a property in April 2010 and earned capital gain of Rs 50 lakh. To save tax, he has to invest the amount of capital gain either for the purchase of a new residential property by April 2012 (within 2 years) or for the construction of a residential property by April 2013 (within 3 years). If in case he was unable to reinvest the money before the date of filing income tax return i.e July 31st, 2011 he either have to pay tax on capital gain i.e 20% of Rs 50 lakhs = 10 lakhs or he can open and deposit the money into Capital gain account scheme with any nationalized bank to save tax. But if he will not purchase a new residential property by April 2012, he will have to pay tax on the long term capital gain + interest earned from CGAS in the financial year 2013-2014.

Different sub section applicable for the exemption under Section 54 of income tax act 1961

  • Sale of a residential house (Sec 54)
  • Sale of agricultural land (Sec 54B)
  • Compulsory acquisition of land & building (Sec 54D)
  • Sale of any long term capital asset (Sec 54F)
  • Transfer of assets in case of shifting of industrial undertaking. (Sec 54G)

Types Of Capital Gain Scheme (CGS) Accounts

There are two types of Capital Gain Scheme (CGS) accounts.

Account A – It is more like a savings bank account where account holder can withdraw money time to time and the interest paid on this account is at par with normal saving bank account rate. The amount withdrawn from this account should be utilized within 60 days or reinvested back in the saving account else will be taxable.

Account B – It is like more like a term deposit where amount can be deposited for fixed time period. This account offers two options—cumulative (interest reinvested) or non-cumulative (quarterly withdrawal). The interest rate is generally fixed by the bank and is either on a par with other term deposits or slightly lower.

Silent Feature Of Capital Gain Account Scheme

  • This scheme can only benefit to people with long term capital gain (LTCG).
  • Only Individuals and Hindu Undivided Family’s can avail exemption under this scheme on LTCG.
  • Tax payer should deposit sale proceeds before the due date of filing income tax return for the relevant previous year.
  • Tax payer should open two separate accounts for two different asset classes which qualify under different sections.
  • Amount withdrawn from CGS account should either be utilized within 60 days or should be redeposit in saving account i.e Account A.
  • Proof of deposit needs to be submitted along while filing income tax return to avail exemption..
  • Interest earned on this account is taxable in the hands of account holder.
  • No loan facility is available on this account.
  • Account transfer from one bank branch to another is permissible.
  • Account holder can switch from Account A to Account B or vice versa of the same bank if opened under the same provision.
  • Capital gains made in one asset class cannot be invested in another asset class for claiming tax benefit.
  • In case of total capital gain is not utilized within stipulated time, taxpayer can avail proportionate deduction.
  • In case of pre-mature transfer from Account B to Account A, the normal penalty will be applicable.
  • Withdrawals can be made only from Account A by submitting a declaration where the purpose for the amount withdrawal should be mentioned clearly.
  • Withdrawal for more than Rs 25000 is paid only by way of crossed demand draft.
  • In Capital Gains Accounts Scheme, the depositor can deposit the money in both the accounts i.e Account A and Account B.
  • In case of Account A, the bank shall issue a bank passbook to the depositor.
  • In case of Account B, the bank shall issue a deposit receipt to the depositor.

What Are The Different Type Of Forms Used To Operate Capital Gain Account Scheme?

Form C :- Whenever account holder needs to withdraw money for the purpose of making payment for the purchase or construction of residential property, he can apply using form C.

Form D :- After initial or first withdrawal, tax payer needs to apply for withdrawal using form D in duplicate.

Form E :- The scheme further provides that the amount which has been withdrawn should be utilized for purchase or construction of the property within 60 days from the date of such withdrawal. The facility of nomination is also available to the deposit holder by filling up Form No E.

Form G :- Account holder can apply for the closure of capital gain account scheme using Form G.

Form H :- Nominee or legal heir need to take approval from the assessing officer in Form H who has jurisdiction over deceased depositor and submit to bank.

Where To Open A Capital Gain Account Scheme – Saving/Fixed?
The account can be opened with any branch (excepting a rural branch) of the 28 designated
nationalized banks including :-

  • State Bank of India
  • Oriental Bank of Commerce
  • UCO Bank
  • Union Bank of India (UBI),
  • Punjab National Bank,
  • Vijaya Bank
  • State Bank of Bikaner & Jaipur
  • State Bank of Hyderabad
  • State Bank of Indore
  • State Bank of Mysore
  • State Bank of Patiala
  • State Bank of Saurashtra
  • State Bank of Travancore
  • Central Bank of India
  • Bank of India
  • Bank of Baroda
  • Canara Bank
  • United Bank of India
  • Dena Bank
  • Syndicate Bank
  • Allahabad Bank
  • Indian Bank
  • Bank of Maharashtra
  • Indian Overseas Bank
  • Andhra Bank
  • Corporation Bank
  • New Bank of India
  • Punjab & Sind Bank.

ALSO READ :- Tax Implications On Capital Gains – Short Term & Long Term Capital Gain

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