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Capital gain is the term used to express gain that occurred due to the sale of capital assets, which can be short-term or long-term. Although the sale of Long-term assets results in either gain or loss, if there is a loss in capital assets, it can be adjusted in the current year or future years with gains under the head capital gain. Whereas if the conclusion figures of such sale transaction are gain, then such gain is taxable at special rates authorized under Income tax act, 1961.
Since such gains are taxable, some exemptions are also available per the Income tax Act. There are many investments specified under the Income tax Act from Section 54 to 54GB, and if taxpayers invest in these investments, they can claim exemptions.
Capital gain account scheme was introduced in 1988. A taxpayer who is unable to re-invest Capital gain in specified investment before the due date of filing of Income-tax return and time period for investing in the specified section has not expired then the taxpayer can deposit the untried amount of capital gain into Capital gain Account Scheme and can claim the exemption. All the eligible assesses for exemption u/s- 54, 54B, 54D, 54E, 54EC, 54F 54G, 54GA, or 54GB can apply for the capital gain account scheme.
Types of Account under Capital Gain Scheme:
Deposit account-A is in the form of savings
The taxpayers can withdraw the amount from time to time under this account. The depositor has to make an application in Form-C for withdrawal and the passbook to the bank; on receipt of the application, the depositor is allowed to make a withdrawal. The withdrawal amount should be shown in the passbook.
Deposit account-B is in the form of a term deposit
With an option to the depositor to keep the deposit as a cumulative or non-cumulative basis. Withdrawal can be made after expiry of the specified period of time under this account. In this case, the depositor shall has to apply to first transfer the amount to Type A account. If the withdrawal is before the expiry of the specific period, then the same shall be treated as a premature withdrawal and be liable to penal interest. Further, the bank has the right to deny the depositor to withdraw any amount deceiving in his account, in case of failure on his part to enhance all the details as required (such as Form D)
Who can deposit in the capital gains account scheme?
As specified in Section 54 and Section 54F, based on the taxpayer category for capital gains, you can check if you are suitable to invest in the Capital Gains Account Scheme
|
Section number |
Category of taxpayer |
Capital gains earned On |
| 54 | HUF or individual | Sale of a residential house |
| 54D | Any taxpayer | Mandatory acquisition of building and land |
| 54B | HUF or individual | Sale of land used for agriculture |
| 54E | Any taxpayer | Sale of any long-term capital asset |
| 54F | HUF or individual | Sale of a long-term capital asset that is not a residential property |
| 54EC | Any taxpayer | Sale of long-term capital assets, involving building, land or both. |
| 54G | Any taxpayer | The transfer of assets, such as plant, building, land, machinery, right in building or land, when shifting an industrial undertaking from an urban area. |
| 54GB | Any taxpayer | Residential property transfer |
| 54GA | Any taxpayer | The transfer of assets, such as plant, building, land, when shifting an industrial undertaking from an urban area to a special economic zone. |
Procedure for account opening under CGAS, 1988
Account can be opened by making application in duplicate in form-A and other required documents such as PAN, Address Proof, Photograph Etc. The taxpayer has to decide whether the amount is to be deposited under Type A or Type B account and if it is Type B whether the deposit is on a cumulative or non-cumulative basis.
The amount can be deposited in cash, cheque or by demand draft. The effective date of deposit to declare the benefit of exemption shall be the date of deposit of cheque or draft at deposit office (subject to realization).
If the amount is deposited under a Type, A account bank will issue a passbook wherein all the deposit details, withdrawal, interest due, etc., shall be recorded. In the case of Type B, the bank will issue a deposit receipt wherein the principal amount, date of deposit etc., shall be mentioned.
Procedure for transfer and changing of the account
The amount withdrawn shall be promoted by the depositor within 60 days from such withdrawal date for the purposes stated in the respective section. Further, if the amount remains inoperative, the same shall immediately be re-deposited in account A.
The amount standing in Account A or Account B can’t be placed or offered as security for any loan or guarantee.
Nomination by depositor
Account closure procedure
The depositor has to make the application in form-G with Jurisdictional Assessing Officer approval, and the bank will transfer any balance amount to any bank account of the depositor. Still, if the depositor dies, the nominee or legal heir has to make an application in form-H with Jurisdictional Assessing Officer approval.
Income tax implications
Interest earned on both Type A and Type B deposits is liable to tax subject to tax law, and the deposit office will deduct tax, and a TDS certificate will be issued to the depositor. Any amount either underutilized beyond 60 days of withdrawal or beyond the specified time limit will be offered to tax.
At AJSH, we assist our clients with various income tax compliances, including tax assessments, ITR filings, tax advisory and other related services by providing them adequate support and guidance from our end. If you have any questions or wish to know more about the Capital gain account scheme, kindly contact us.
