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What is capital gains account scheme? How to open an account and Tax Benefits.

What is capital gains account scheme? How to open an account and Tax Benefits.



Whenever any person sell their property, any profit arising from sale of property is called capital gains. Capital gains are taxable. Introduced in 1988, Capital gains account scheme help to save tax of the taxpayer.


Capital gains account scheme state the amount of capital gains that can be claimed as exemption should be reinvested or put in capital gains account before filing the returns.


If any taxpayer wish to sell their property and want to save tax on the capital gains, Capital Gains Account Scheme (CAGS) should be their first choice.

Government under various section of schemes provide for ways to save tax on capital gains through capital gains account scheme.

How to open an account


Opening an account in Capital Gains Account scheme is necessary to get tax exemption. In order to open the capital gains account the taxpayer is required to apply for opening the account.


The applicant must provide a duplicate of Form A. The applicant along with Form A must submit: Proof of Address, a copy of Pan Card and a photograph.


There are twenty eight banks authorised by the government of India. Through these banks capital gains account can be opened.


There a two types of account under CAGS which any person looking to save tax on capital gains can open.


1. Type A - (Saving Account) - It is similar to normal savings account. It has similar interest rate like savings account. In this account the deposit office will give the depositor a pass book. The pass book contain all the necessary information like deposits, withdrawals or interest. This is advisable when capital gains is used to construct a house since there is continuous withdrawals and deposits.


2. Type B – (Term Deposit Account): Under this account the amount is fixed for a period of time. The interest rate is similar to fixed deposits in banks. This account is similar to fixed deposit account. Pre mature withdrawals lead to penalty. This is good when purchase of house is done. The Type B account has two types. Cumulative, where the interest is reinvested and total amount is paid after term period. Non-Cumulative, the interest is paid regularly.


The income tax act require the taxpayer to invest the capital gains in specific instruments. Sometimes the filing date for income tax returns of the year which has capital gains arise before the specified period expire.

Thus the income tax advice the taxpayer to deposit the capital gains amount in the capital gains account scheme.


The capital gain amount is deposited in lump sum or instalments in the form either cash or cheque or demand draft.


If a taxpayer want to get benefit from more than one section of Income Tax Act he/she should fill another application form in similar manner to open a capital gain account under different section.


IDBI Bank Ltd has a deposit range of Rs.10, 000-100 crore.


The State Bank of India, has a lower limit of Rs.1, 000 with no upper limit.


Tax Benefits


The money deposited in CGAS can only be used for buying new asset or constructing new asset. Any amount less than Rs. 25,000 can be withdrawn without any demand draft. Any amount above Rs. 25,000 will get a demand draft. The money withdrawn has to be used within 60 days of withdrawal.


Individuals and Hindu Undivided Family (HUF) can obtain huge advantage from Capital Gains Account Scheme. Anyone who want to invest in property to save tax on long term capital gain can benefit much from the scheme.


According to provision in Income Tax Act, 1961 if investments are made in two years from the sale date then the taxpayer can save capital gain tax.


The deposited amount cannot be used as a security for loan.


The interest on the deposited amount is not tax free. TDS will be deducted according to the income tax act.


A nominee can also be appointed by a taxpayer by using the application form E. Changes in such accounts can be made from form F.


Form G can be used to close the capital gain account. In case the depositor dies the nominee will have to use form H to close the account.




Thus opening an account with capital gain account scheme is very important. It is very crucial for anyone who wish to save tax on capital gain. It can help a person save tax on the gains arising from sale of an asset. However as per provision in these section capital gains amount is required to be reinvested. This has to be done within a specified period. However if the income tax returns filing is before the specified period. The capital gain amount can be transferred to capital gains account scheme briefly.


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