• Investment
  • Car
  • Bike
  • Taxi
  • Term Life
  • Health
  • Travel

Capital Gains Account Scheme

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.

What is Capital Gain Account Scheme?

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.

Types of Capital Gains Account Scheme

The types of deposit available under Capital Gain Account Scheme are:

Type A- Savings Deposit

  • It is similar to a normal savings bank account.
  • Interest rate provided is also similar to the saving interest rate provided by that bank.
  • Interest will be credited periodically.
  • Deposit holder also has a passbook with him.
  • It offers better liquidity and withdrawal is available at any time.

Type B – Term Deposit

  • It is similar to regular fixed deposits account.
  • It offers interest rate at the rate applicable to term deposit.
  • Restrictions are similar to that of term deposit account.
  • Depositor in this account has to choose term of this deposit according to his plan.
  • He will also receive a deposit certificate as usually received in normal fixed deposits account.
  • It shall be required to be submitted at the time of withdrawal.
  • However, facility of auto renewal just like in case of normal fixed deposits is not available under this scheme.
  • Here, interest received shall either be cumulative or non cumulative. This means interest is either collected and reinvested along with principal, or the interest is paid to the credit of the depositor at regular intervals.

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:

  • specified investment,
  • requirement of fund,
  • Rate of interest etc.

Capital Gains Account Scheme Features

Account Closure

  • Closure of both Type A and Type B account requires prior approval from jurisdictional income tax officer.
  • Closure of these accounts requires Form G.

Nomination

  • In the event of the depositor’s death, the nominee shall inherent the account. He shall submit Form E. A minor can be a nominee.
  • He shall also be eligible to change the nominee.
  • Nomination is allowed up to three persons. Amount to be received by them shall be in their order of nomination.
  • It is to be noted that nominations shall not be allowed in respect for accounts opened on behalf of minor, HUF, AOP, BOI or firm.

Facility of Loan

  • No loan shall be granted against Capital Gain Account Scheme. It cannot be offered as collateral security or guarantee or any charge cannot be created on the same.

Income tax implications

  • Amount withdrawn from such account has to be utilized within 60 days from such withdrawal or time limit as specified. If not utilized, it shall be subject to taxation as per the Income tax laws.

Tax on Interest earned on Capital Gains Account Scheme

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.

How can one withdraw Money from a Capital Gains Account?

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.

Transfer and Conversion of Capital Gains Account

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.

Frequently Asked Questions

When should one deposit in Capital Gains Account Scheme?

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.

Where can one open the capital gains account?

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.

What is the procedure to open the Capital gain account?

  • To open this account, application shall be made in duplicate in Form A
  • There shall be requirement of documents such as PAN, address proof, photograph etc.
  • Deposit in such account shall be made in any mode. Cash, cheque, demand draft, etc. is acceptable mode of payment.
  • Deposit can be made either in installments or on lump sum basis.
  • If a tax payer has capital gains under different sections of the Act, then separate capital gain account shall be opened for such respective sections.

Which banks accept deposit under Capital gain account scheme?

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:

  • State Bank of India,
  • Central Bank of India,
  • Bank of India,
  • Punjab National Bank,
  • Bank of Baroda,
  • UCO Bank,
  • Canara Bank,
  • United Bank of India,
  • Dena Bank,
  • Syndicate Bank,
  • Union Bank of India,
  • Allahabad Bank,
  • Indian Bank,
  • Bank of Maharashtra ,
  • Indian Overseas Bank,
  • Andhra Bank,
  • Corporation Bank,
  • New Bank of India,
  • Oriental Bank of Commerce,
  • Punjab & Sind Bank &
  • Vijaya Bank.

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.

What is capital gain tax in India on sale of a property?

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.

Read More About Tax