Central Government first introduced the Capital Gain Account Scheme in 1988. Capital Gain Account Scheme was launched with the intention of providing relief from tax on capital gains earned due to the sale of capital assets. This relief was provided if the gains are re-invested. In other words, capital gain tax liability could be avoided due to re-investment of gains earned in the scheme prescribed, subject to a specified time period. Capital gains arise when the amount of sale price is more than the cost of acquisition or indexed cost of acquisition. Such an amount of gain has to be re-invested properly by the assesse to claim exemptions as prescribed. Where the assesse is not able to re-invest such amount, it shall be deposited by it in a specified nationalized bank.
Various taxpayers earn capital gains and do not reinvest such gains as the time period for such reinvestment is huge. That is, the time period between earning of gains and reinvestment is longer. Also, sometimes it even exceeds the due date of tax return filing. Due to this extended time period, an assesse does not re-invest immediately and therefore, is unable to claim exemptions available for capital gain taxes. In order to address this problem, the government proposed Capital Gain Account Scheme. Herein, the tax payer has an option to re-invest the unutilized capital gains under Capital Gain Account Scheme. Amount invested under this scheme shall be eligible for exemption. It is applicable for all assesses.
The types of deposit available under Capital Gain Account Scheme are:
RBI fixes the interest rates under both the accounts. It depends upon the depositor who shall look at the following while choosing the type of account as mentioned above:
Interest earned on both Type A and Type B deposit is liable to tax under income from other sources. Tax will be deducted by authorized personnel and TDS certificate will then be issued to the depositor. As mentioned above, interest rates are similar to that of regular saving or fixed deposit account. Interest rates shall be specified by RBI and interest shall be provided for each calendar month on the lowest balance between the close of 10th day and end of the month. It shall be credited at the end of each half year.
Type A account does not have any restrictions on withdrawal. Type A is a savings account. Premature withdrawal is allowed from Type B account, however the same shall first be transferred to Type A account and then withdrawn. It shall also be liable to a penalty as prescribed.
The depositor shall not be issued any cheque book or debit card as Form C shall be submitted by the depositor for first withdrawal and Form D for subsequent withdrawal.
A depositor, on his own desire, can apply for transfer of his account from one deposit office to another deposit office of the same bank.
He also has the power to convert the whole or part of his Type A account to Type B and vice-versa.
He can also transfer funds from one type of account to another.
Request for transfer of fund from one account type to another before the expiry of specified period shall be treated as a premature withdrawal of amount.
Any person liable to pay capital gain tax shall deposit in Capital gain account scheme if he is not able to re-invest the gains earned in investments as specified under the time limit for making such investments. The taxpayer shall deposit such unutilized gain before filing of return of income. Deposits cannot be made in such account post filing of return of income.
One can open the capital gains account in banks as authorized by the concerned official. However, such accounts shall not be opened in rural branches of the authorized banks.
In all, 28 banks can accept deposits under this scheme. Not all banks are allowed to accept such deposits. The names of these banks are:
Apart from the aforementioned banks, no other bank is authorized to accept deposits under the capital gain account scheme. It is important to note that rural branches of these banks cannot accept deposits under the scheme.
For instance, if you have purchased a property for INR 25 lakhs and sell it after a period of 5 years for INR 35 lakhs, you will make a profit of INR 10 lakhs. However, the actual gains will be lower after indexation. The tax on real estate for long term capital gains is 20% and no tax deduction are eligible on long term capital gains.
