Capital Gains Account Scheme: Key Features & Tax Benefits
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withdrawn at the time of investment in the specified instrument.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withdrawn at the time of investment in the specified instrument.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
- Only Individuals and HUF are allowed to open capital gains account.
- The amount deposited in the Capital gains account cannot be offered as a Security for any Loan/ Guarantee.
- 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.
- 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.
- 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.
- 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
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