Capital Gains Account Scheme: Key Features & Tax Benefits

Capital Gains Account Scheme: Key Features & Tax Benefits
The profit that arises on the sale of any property is referred to as Capital Gains and is chargeable to tax. But Govt also provides for various schemes for saving tax on such capital gains under Section 54, 54B, 54D, 54F etc.

However, as per the provisions of these sections, the amount is required to be reinvested in specified investment types before the specified period. However, if the due date of filing income tax returns falls before the expiry of the specified period, the amount of capital gains is required to be invested temporarily in the Capital Gains Account Scheme which can be easily withdrawn at the time of investment in the specified instrument.

Capital Gains Account Scheme


As per the Income Tax Act, the taxpayer is allowed some time (2/3 years) to invest the capital gains in specified instruments. However, in many cases the due date for filing income tax returns for the year in which the capital gains arises is before the expiry of the specified period.

To avoid such issues, the income tax act prescribes that the taxpayer should deposit the amount of capital gains in the capital gains account scheme on or before the due date of filing of income tax returns which can be easily withdrawn at the time of investment in the specified instrument.

Features of Capital Gains Account Scheme


The Capital Gains Account Scheme was introduced in the year 1988, and as per the Capital Gains Account Scheme the amount of capital gains to be claimed as an exemption should be either be re-invested or deposited in the Capital Gains Account before the due date of filing of returns.

The Govt has notified 28 banks which can open the Capital Gains Account on behalf of the Govt.  All branches of these 28 banks except Rural Branches are authorised to open the capital gains account.

There are 2 categories of Capital Gains Account which are as follows:-


Capital Gains Account -Type A – Savings Account: This is like a normal savings account and the interest payable on this account is the same as the interest paid on normal savings account by that bank.

Capital Gains Account -Type B – Term Deposit Account: This is like a fixed deposit wherein the amount is deposited for a fixed period of time. The interest rate on this account is equivalent to the interest paid on fixed deposits by the bank. As Type B accounts are same as Fixed Deposits Account, any withdrawl from this type of account attracts a penalty for pre-maturity withdrawl.

The interest paid and pre-maturity penalty levied varies from bank to bank and is different for different banks.

Capital Gains Account Type A is advised when the amount of capital gains is to be used for construction of a house as the amount would be required to be withdrawn in various stages. Type B Term Deposit Account is advised when the amount of capital gains is to be utilised for purchase of a house.

Capital Gains Account Type B is also of 2 types – Cumulative and Non-Cumulative. Under the cumulative option – the interest is re-invested and the total amount is paid at the time of the completion of the term period or at the time of withdrawl (whichever is earlier). Under the non-cumulative option, the interest is paid at regular intervals and is not reinvested.

OPENING OF CAPITAL GAINS ACCOUNT

To deposit the amount in the capital gains account, the taxpayer would first be required to apply for opening the account by making in application in Form A. He would also be required to submit the following documents along with Form A – Proof of Address + Copy of PAN Card + Photograph.

Type A Account can be converted into a Type B Account and vice-versa on an application made by the taxpayer in Form B.

WITHDRAWL FROM CAPITAL GAINS ACCOUNT SCHEME

The amount deposited in the Capital Gains Account can be withdrawn by making an application in Form C. The amount so withdrawn has to be utilized within 60 days from the date of such withdrawal and only for the purpose of such withdrawal. The unutilized amount should be re-deposited immediately.

For subsequent withdrawal, the application is required to be made in Form D by detailing the manner/purpose for which the previous withdrawal has been utilized.

Many Banks don’t issue any cheque book for the capital gains account and amount as the amount is to be withdrawn not using a cheque but by furnishing an application in Form C/ Form D.

OTHER FEATURES OF CAPITAL GAINS ACCOUNT
  1. Only Individuals and HUF are allowed to open capital gains account.
  2. The amount deposited in the Capital gains account cannot be offered as a Security for any Loan/ Guarantee.
  3. The Interest on such account is not tax-free and TDS is also liable to be deducted from such account as per the provisions of the income tax act.
  4. The taxpayer can also appoint nominees to this account by making an application in Form E. Such nomination can also be cancelled by making an application in Form F.
  5. To close the Capital Gains Account, an application in Form G is required to be made. In case of the death of the depositor, such application would be required to be made by the nominee/legal heirs in Form H.
  6. The approval of the income tax officer who has the jurisdiction of the depositor is also required at the time of making an application for the closure of the account.

If the amount deposited in the capital gains account is not utilised for the specified purpose before the expiry of the specified time, the amount of capital gains not utilised would be chargeable to tax as capital gains in the financial year in which the time period expires.

With inputs from www.charteredclub.com

0 comments:

Post a comment

Note: only a member of this blog may post a comment.