This blog post explains about the capital gains account scheme and what is the purpose of this account. If you are aware of the long term capital gains, then you must learn about this account scheme to save the tax. This article will explain how to save the tax from the long term capital gains using this scheme. If you have any doubts please post it in the comments section. Subscribe to our future articles here.
What is Capital Gains Account Scheme?
Capital gains arise when some one sells land, house or any capital assets with profit. It is liable to pay the tax for all the long term capital gains. But, there is exemption on capital gains if the amount is spent for buying the new property or constructing new property within the specified time.
To avoid paying the capital gains tax, you must buy a new property within two years or construct new house within three years. For example, if you are selling a capital asset on October 2010, there will be capital gains in the profit arise from the sale. To avoid that, you must buy another property before October 2012 or construct new house before October 2013. Here the problem is that, you must file the IT returns before July 31st of every year. In the above case, you have show the capital gains and pay the tax if you are not invested in buying a new house or constructed one.
As I have describe above, to escape from the returns filing, you must create a new Capital Gains Account Scheme in any of the nationalized bank and deposit the amount. This amount must be used for buying the house or constructions before the stipulated time given by the Income Tax act. If you are not doing so, the amount deposited in the account will be subject to the capital gains tax.
Types of Capital Gains Account Scheme
There is two types of accounts under this scheme. One is deposit account A, which is savings account. Second one is term deposit account B which is term deposit account.
- In the first option, the amount withdrawn should be utilized for the purpose within sixty days of the withdrawal. Any un-utilized amount should be redeposited in Deposit Account A. In case the amount deposited is not utilized wholly or partly for the purchase or construction of the new property within the period specified, then the un-utilized amount will be charged as income of the previous year in which the period of three years from the date of the transfer of the original property expires. Interest rates will be give at the savings bank interest rates.
- In the second option, it is similar to the term deposits. It comes with cumulative and non-cumulative. The interest rates would at par with the other fixed deposits offered by the bank.
Important Points to Consider on Capital Gains Account
- The interest amount on this account is taxable.
- If you are selling the two different asset classes in different time, you need to open the two separate accounts.
- Using this deposit, you can not get any loans.
I hope this article is very useful for saving the tax on capital gains. I wrote this articles because many people not aware of this scheme. If you are not aware of the capital gains, please read our articles on Capital Gains Tax. Thank you for reading this article. If you have any doubts please post it in the comments section.
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