In our previous article ‘What is capital gain and how capital gain tax has arrived?”, we have discussed the definition of capital gain, Tax applicable on Short-Term and Long-Term Capital Gains, Exemption of tax available on capital gains, the time limit for reinvestment, how indexation cost of the capital asset has arrived, etc. Through this article, let us understand a little more in detail of the ‘Capital Gains Account Scheme’ where the taxpayer is given an option of depositing unutilized/underutilized capital gains in ‘Capital Gains Account’ to be eligible for capital gain tax exemption.
As per the Capital gain rules, the gains from sale proceeds are invested in the purchase of another house either a year before or within two years from the date of transfer, or used for the construction of a house within three years of the date of transfer. In order to enable the taxpayer to park their capital gain funds till they are invested for the prescribed purpose, the taxpayer is allowed to deposit the money in banks under the Capital Gains Account scheme (CGAS). Any capital gain invested under the Capital Gains Account Scheme will be eligible for capital gain exemption as it would in case of re-investment. The authorized branches of State Bank of India and the public sector banks like Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Indian Bank, Indian Overseas Bank, Punjab National Bank, Punjab & Sind Bank, UCO Bank, Union Bank of India, are permitted to open an account under CGAS. Rural branches of these banks are not included in the authorized list of banks to open CGAS.
Types of accounts:
Two types of accounts can be opened in banks under the Capital Gain Account Scheme(CGAS) viz. CGAS savings account (Account A) or CGAS term deposit (Account B). Application for a capital gain account either for Type A account or Type B account shall be submitted to the authorized bank along with necessary documents including a copy of PAN card address proof and photograph, etc. In account type ‘A’ savings deposit account, money may be withdrawn any number of times for the specified purpose indicated under the scheme. Money so withdrawn shall be utilised for specified purpose within 60 days of withdrawal; unutilised money shall be re-credited to the account before 60 days of withdrawal. Any amount withdrawn and underutilized beyond 60 days of withdrawal or the unutilised amount remaining in the capital gain account beyond the expiry of the time limit will be treated as taxable capital gain income. Usually, a person who is planning to construct a house over a period of the time prefers to open-type ‘A’ account. ‘Account type ‘B’ is the term deposit which can be opened for a period of 3 years from the date of transfer of the original asset (not the date of deposit). Remember, if the assignee keeps capital gains for more than the maximum period; entire capital gains will become taxable. The interest earned on the deposit may either be withdrawn periodically or it may be reinvested. The interest earned on CGAS deposits is taxable and TDS will be deducted as per provisions of income tax. The deposits maintained under capital gain account cannot be used to avail of a loan or be offered as security for loans or guarantee. Money may be deposited in CGAS account in a lump sum or in installments before the last date of filing IT return. For example, a sale is effected in the month of May 2020, in that case, the taxpayer may deposit the entire amount of capital gain (not necessary to place the entire amount of sale proceeds) from the transfer of the property in CGAS account either in type A or B on or before the date of filing the IT return or the last date for filing returns whichever is earlier (The last date is the last date specified by the income tax department for filing an income tax return by an assignee for a particular financial year). The depositor may change the nature of deposit from SB to term deposit or vice versa. Money may be withdrawn from the CGAS account, but only when the assignee needs it for purchase of a property or construction of a house. To withdraw money, written application to be submitted to the bank quoting purposes, the first time in form C and for subsequent withdrawals in form D (bank after receiving two copies of Form D from the account holder will retain one copy and return the other copy to the taxpayer). Type B (Deposit) account may be closed before maturity and transfer the proceeds to type A (savings) for utilizing the funds for specified investments. Also, the deposit may be transferred from one branch to another branch of the same bank but not between different banks. As per Income tax law, it is necessary to attach proof of deposit to the income tax return for availing capital gain exemption, income tax return forms are attachment fewer forms and hence no document can be annexed to income tax forms. However, proof of deposit is required to be retained by the taxpayer for submission to the income tax department on-demand in the future.
The following forms are used in capital gain accounts:
Form A: Application for opening an account under the ‘Capital Gains Accounts Scheme, 1988’.
Form B: shall be submitted for any transfer from Type B account(deposit) to Type A account(SB)
Form C: shall be submitted for withdrawal from an account for the first time
Form D: shall be submitted for subsequent withdrawal providing details of the manner of utilisation of money withdrawn earlier.
(Remember no chequebook or debit card is issued to the depositor for withdrawal of money from CGAS account)
Form E: shall be submitted for making nomination
Form F: Shall be submitted for change of nominee
Form G: shall be submitted for the closure of account (along with jurisdictional income tax officer’s approval).
Form H: shall be submitted for closure of account by nominee/legal heir of deceased depositor in the absence of nominee.