Capital Gains Account Scheme (CGAS)

This includes State Bank of India and other State Banks, Syndicate Bank, Central Bank of India, IDBI Bank, Bank of Baroda and Corporation Bank. However, the CGAS facility is not available in the rural branches of these banks.

By completing Form A and returning it with a copy of your PAN card, proof of address, and a photo, you can open a capital gains account. Demand draughts, cash deposits, and checks are all acceptable methods of funding an account.

Even better, you can deposit the money in installments. If you made a deposit using a demand draught or cheque, the date of deposit will be determined by the date the cheque or DD is cashed. Additionally, you must register separate CGAS accounts if you want to invest in both real estate and government bonds under various parts of the Income Tax Act.

Saving Long-Term Capital Gains Tax in CGAS

The Income Tax Act, however, allows you to save on these capital gains tax through Sections 54 and 54F, if you invest your entire capital gains in a residential property, or Section 54EC if you invest in capital gains bonds. These investments have to be made either within 1 year before the sale of the property, or within 2 years of the transaction.

But what would happen if you are unable to invest your entire long-term capital gains in a residential property before the time to file income tax return for the fiscal year approaches? You need to convince the tax department that you intend to invest the capital gains, but need some more time to do so.

To achieve this, you can open a Capital Gains Account Scheme (CGAS) with any scheduled bank. The amount you put in this can be withdrawn at any time to buy or construct a house and save long-term capital gains tax.

Types of Capital Gains Account Scheme

Capital gains accounts come in 2 categories: Savings and Term Deposit.

CGAS Type A - Savings Account:

A capital gains savings account is similar to the regular savings account in any bank. The applicable interest rate is also the same as that given on regular saving schemes. You will receive a passbook that has records of all transactions - deposits, interest received, withdrawals - made in the account. The amount deposited in this account will have high liquidity and can be withdrawn at any time.

CGAS Type B - Term Deposit Account:

A capital gains term deposit account is similar to the fixed deposit schemes of banks. The rate of interest and terms surrounding withdrawal before maturity also remain the same as the bank's FD scheme.

So if you withdraw the amount in this account before the end of the tenure that you agreed with the bank you may have to pay premature withdrawal penalty, depending on the terms of the bank. You will receive a deposit receipt that specifies the principal deposited, date of deposit, date of maturity and the interest rate. This account also offers cumulative and non-cumulative options.

In the cumulative option, the interest amount is added to the term deposit and reinvested, thereby adding to the total interest accrued. The non-cumulative scheme, on the other hand, allows you to withdraw or receive the interest at regular intervals - quarterly, half-yearly or annually.

The tenure of a Type B account is a maximum of 36 months (3 years) if you are constructing a house, and 24 months (2 years) if you plan to buy a ready house. The capital gains term deposit account is recommended only if the capital gains are available in a lump sum.

You could place the amount in a capital gains term deposit scheme for a period of less than 2 years, so that you can make the required investment before the end of 2 years by which such an investment should be made to get exemption on capital gains tax. This way, you can benefit from the interest accrued on the term deposit.

Capital gains savings account is better if you are getting the amount in instalments and if you would have to withdraw amounts in bits and pieces - for example if you are constructing a house rather than buying a ready-to-occupy flat.

The interest generated through these accounts is subject to TDS as per the Income Tax rules. These accounts do not come with a cheque book or debit card as the money can be withdrawn only through Forms C and D only.

How To Withdraw Money from a Capital Gains Accounts?

Form C - To withdraw money from a capital gains account, you need to make an application through Form C. Once the withdrawal is made, you need to utilise it within 60 days and it cannot be re-deposited in the account immediately. If a second withdrawal is required, you need to make an application through.

Form D - You are allowed to transfer the account from one branch of the bank to another, but not from one bank to another bank. You may also change the nature of your account in part or whole between the account types - that is, from Savings Account to Term Deposit Account and vice versa.

But if you are transferring the account from term deposit to savings before the end of the maturity period, then the transfer will be considered as premature withdrawal and penalties will be applied accordingly.

Form E - A Capital Gains Account can be opened only by individuals and Hindu United Families (HUF), and no loan can be taken based on this account. If you want to nominate anyone to inherit the money upon your death, you can do so using Form E, and a change in nominee can be done using Form F.

Form F - To close the account, you will need the approval of the Income Tax Officer under whose jurisdiction you come. Also ensure that you utilise the amount deposited in capital gains account within 2 years of sale of property to avail the benefits under Sections 54, 54EC and 54F. If this is not done, the unutilised amount will be subject to capital gains tax in the fiscal in which the deadline ends.

Who can deposit in the Capital Gains Accounts Scheme?

Under the Income Tax Act 1961, Section 54 to 54F, taxpayers who have capital gains and are eligible to invest in the Capital Gains Account Scheme have been mentioned below:

When can I Deposit in Capital Gains Account Scheme?

The capital gains that are unutilised by taxpayers who are unable to reinvest them in a designated investment must be deposited into the capital gains account before the required time restriction for that investment has passed and before the taxpayers' income tax returns are filed. Before the income tax returns are provided, this must be done. It shouldn't happen beyond the deadline for submitting tax returns.

How can I Withdraw from Capital Gains Account?

People with a Type A capital gains account can withdraw their money without any restrictions. However, people with a Type B capital gains account can do a premature withdrawal from their account only if they transfer their amount to Type A account first. Any withdrawal must be used for the specified investment within 60 days of the withdrawal, and any unused cash may be immediately redeposited into a Type A account.

Points to Remember

Here are a few points that everyone should remember about Capital Gains Account:

1. Any transfer from a Type B account to a Type A account prior to the maturity period is regarded as a premature withdrawal, even if deposit types can be changed, such as from savings to term deposits or vice versa. Additionally, account transfers between branches are permitted but not transfers between other banks.

1. Form E must be submitted to nominate someone to inherit the account following the depositor's death, and Form F must be submitted to modify the nominee.
2. Both sorts of accounts need the jurisdictional income tax officer's permission to be closed. Account closure requires the submission of Form G and authorisation from the jurisdictional income tax officer.
3. A loan cannot be taken out against a capital gains account. Deposit certificates cannot be used as guarantees or collateral, nor may any charges be made against them.