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The Query
Mr Chaudhury has just sold his old ancestral house for a lump sum consideration of Rs.20,00,000. He has now set his eyes on a new apartment which is due for possession within the next two years. Mr. Chaudhury is in a dilemma, he is aware that the amount he has received is a Capital Gain in his hands and is liable to tax. His intention is to use this fund towards paying for his new abode. What are his options?
What is Capital Gains Account Scheme?
The Income Tax Act of India had foreseen such an eventuality and has thus launched the Capital Gains Account Scheme (CGAS) in 1988. As per the provisions of this capital gain account scheme, Mr Chaudhury can park his funds in this capital gain account and keep them outside the ambit of taxation if he opens the Capital Gains Account within the last date of filing his income tax returns.
Thus, assuming that he made the sale in the financial year 2016-17, Mr Chaudhury has to open the account and deposit the unutilized sum by 31st July 2017. In fact as per the provisions of the act anyone can save tax on Long Term Capital gains provided:
- A residential property is purchased within 2 years of the sale having been effected.
- A residential property is constructed within 3 years of the sale having been effected
Modalities of Capital Gains Account Scheme?
Having come to know about this capital gains account scheme, Mr Chaudhury is feeling relaxed, but he still needs to know more before he can actually accomplish his primary task of saving tax on Capital Gains.
Where can the Capital Gains Account Scheme-CGAS account be opened?
The Government has laid out a complete list of 28 PSU banks where this capital gain account scheme can be opened. SBI, its subsidiaries, UCO Bank, Bank of Baroda, Canara Bank, IOB etc., appear in this list. It is however to be noted that only urban and metro branches are permitted to offer this capital gain account to the customers and rural branches are not included. IDBI bank has been added to the list last year.
What are the types of deposits which can be made in Capital Gains Account Scheme?
I.Capital Gains Account – Type A – Savings Account:
This capital gain account is like a normal savings account and the interest payable on this account is the same as the rate of interest paid on any normal savings account by that particular bank.
II.Capital Gains Account -Type B – Term Deposit Account:
Interests earned from both this capital gain accounts are liable to be taxed and attract TDS.
If Mr Chaudhury has to make the final payment for his apartment at one go then he would be better served by opening the Type B capital gain account. For those who are constructing a house, Type A capital gain account would be a better option as this would provide the flexibility of multiple withdrawals.
How to withdraw funds from Capital Gains Account Scheme?
The amount deposited in the Capital Gains Account can be withdrawn by making an application in the appropriate form. The amount so withdrawn needs to be utilized within 60 days from the date of such withdrawal and only for the specific purpose for which such withdrawal was made. The unutilised amount has to be re-deposited immediately.
For subsequent withdrawal in this capital gain account, an application is required to be made mentioning details of the manner/purpose in which the previous withdrawal was utilized.
Most banks do not issue any cheque books to the CGAS-Capital Gain Account Scheme holders as the withdrawal is effected by filling up the specified form only.
All amounts withdrawn in excess of Rs. 25000/- are disbursed by the bank through Demand Drafts directly in the name of the vendor or builder.
How to close the Capital Gain Account Scheme – CGAS account?
The Income Tax assessing officer can approve the closure of the account. On the closure of the capital gain account or after the lapse of three years, whichever is earlier, the entire unutilized funds lying in the account are liable to be taxed under capital gains.
Other Salient Features of the Capital Gains Account Scheme
- Only Individuals and HUF are permitted to open Capital Gains Account.
- The amount deposited in the Capital Gains Account is inadmissible as a security for any loan or guarantee.
- The taxpayer can also appoint nominees to this capital gain account by making an application in the appropriate form.
- The various subtitles associated with the Capital Gains Account Scheme have been demystified and discussed threadbare in the hope that individuals like Mr Chaudhury can now confidently go ahead and transform their realty plans into reality.
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I had invested the capital gains from the sale of my flat in FY 22-23 in a newly opend CGAS account.
1) In FY 23-24, I had spent money towards land registration and other out of pocket expenses including legal charges …….Can I claim this amount from the amount in CGAS now in April 2024 when a new FY has started?
2) I plan to complete the mutation process of this land in April-June quarter…..can I claim this amount now which will be paid by me in cash?
3) I had purchased the land few years back in 2016-17….can I claim this amount now towards house construction?
Hi,
Thank you for a very informative article.
Could you please clarify 2 things.
1- How long does it take for the “assessing officer” to sanction closure of a CGAS account and how could i transfer the monies out of the account.
2 – If the amount could not be re – invested in a house – how much is the penalty please.
Thanks
Question:
I have deposited Rs 48 lacks in CGAS UNDER section 54 on 30.7 .2022 which was updated in my FY 2022_23 return.
I have used 44 lacks.
I have received OC(completion certificate)from authority on 10.6.23.
My 3 years for construction will complete on 15.8.2025 from the date of sale of house.
Four lacks are to be used for lift final payment and some pending jobs of plumbing material and labor.
Please confirm I will get rebate on 4 lacks under section 54 or not.
To claim a rebate on the remaining ₹4 lakhs under Section 54:
Completion Certificate: You received the completion certificate (OC) on 10.6.2023, which validates the substantial completion of your project.
Utilization: The ₹4 lakhs intended for the lift and pending plumbing must be used by 15.8.2025, within the 3-year period from the sale of your previous house.
Rebate Eligibility: As long as the ₹4 lakhs are spent on the construction or completion of the new property within this 3-year window, you will be eligible for the rebate under Section 54.
Ensure all expenses are properly documented for compliance.
Hi,
I have delayed amount in type A scheme. But want to invest the amount in other avenues others that specified by the scheme to avail exemption. So will my long term capital gain tax be deducted from the deposit if I want to close it. Or do I have to pay tax and get a approval from income tax officer?
You need to pay tax with penalty.
I have deposited gains from sale of property in capital gains FD scheme, however I was not able to purchase any property within 3 years time. Now the bank wants Assessing officer’s approval. However they are not paying any interest on the deposit saying that no inert is payable beyond 3 years. It has been over 2 years since the expiry of the FD. I have paid the full amount of tax liability. But the bank insists that no interest payable on the FD
“Yes, you need the Assessing officer’s approval to withdraw your money. Also, you won’t get any interest in your FD after maturity. Your money will stay idle till you withdraw your money.”
Hi, I deposited money in cgas type B three years completed and I don’t want to purchase any property so can I purchase nhai bond to save tax
No.
You need to pay tax with the penalty.
I opened long term capital gain account and put gain in long term capital gain FD in Aug-2015. I did not utilise this amount till now (3 years have gone). Now I want to withdraw the amount for purchasing residential plot. Bank is asking approval of assessing officer before giving me the amount.
I can live with bank providing a DD in the name of the guy from whom I will purchase new plot. Do I still need AO’s approval?
Dear Atul,
If you are buying a house, it should happen within 2 years.
If you are constructing a house it should happen within 3 years. Then only capital gain exemption under section 54 is utilised.
In your case, it is more than 3 years, so you can’t get an exemption. You need to pay tax and close the CGAS account. That’s why your banker is asking for a certificate from the assessing officer.
I have long term capital gains. I want to save capital gain tax by depositing it in capital gain account term deposits. I dont intent to buy or construct a new house. Can i do so? what will be the tax implications? If the matured amount is not utilised for buying/constructing house can i withdraw the mature amount. What will be the tax implcation in such case.
Hi Sir
I am senthil from Coimbatore, we sold our land in mom’s name coimbatore for 10.86 lakhs and invested that money fixed 3 year capital gain scheme in bank in my mom’s name. The amount is going to get matured now within 2 months. Is there any possibility that we can invest this money in govt bonds like rural electrificiation shceme or national highway scheme now ?.. as I dont want to buy any property. Please guide me.
Thanks
Dear Senthil Kumar,
You can invest in REC or NHAI capital gain bonds to avoid paying capital gain tax. The maximum amount you can invest is Rs.50 lacs in a financial year. The current interest rate is 5.25% p.a.
Rajan.
i had deposited 1.25 cr in CGS account-type B a/c ,now what i want to know is how does the bank compound interest on the amt.-is it quarterely or half yearly,since i am facing a problem regarding deficit maturity amt. As of what i know is the maturity amt on F.D certificate is subject to 10 percent T.D.S and after that the remaining amount is payable by bank,kindly throw so light on this matter
Dear Dr. Narang,
Generally Banks compound the interest on a quarterly basis. TDS is deducted on the accrued interest and paid whenever they are due and not only on maturity. So the TDS deduction before maturity will affect the compounding effect to some extent.
Ramalingam