What is Capital Gains Account Scheme?

October 9, 2009

Banking, Income Tax

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.

Read: Should I pay taxes for capital gains?

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  • In the first option, the amount withdrawn should be utilized for the purpose within sixty days of the withdrawal.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.

Summary

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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62 Responses to “What is Capital Gains Account Scheme?”

  1. vijay Says:

    I surrendered 1000 shares in delisting process (RBP) to ALFA Laval. I hold these shares 25 years. Exit price was Rs4000 each. Thus I receive 40 Lakhs Amount. Will this Amount is TAX-FREE or Long term capital gain is applicable?
    If LTCG gain is applicable, I took the NHAI bonds of Rs6 Lakhs and Purchase the huse of Rs34 Lakhs, Now there will be no long term capital gain TAX, is it True?

    Reply

  2. sri darshan Says:

    I sold a property in feb ’12. shud i put al the money in this scheme b4 july ’12.
    I heard ther is a breathing time of 6 months.

    Reply

    • SK Says:

      Sri, You will have to put the capital gains part of the income into this scheme before 31 July 2012, the date for filing the return.
      Please correct me if necessary.

      Reply

  3. medini Says:

    my father sold property in 2012 jan in which he got long term capital gain of 28 lakhs.Due to some reason he was not knowing he have to open account in nationalised bank & pay cheques to builder to buy property from that account & so he invested money in shares with the aim that he will buy a property or will pay tax.But only 4/5 days before last date of filing tax he came to know abt this account but all money was invested in shares which he can not take out.Now he had paid tax of around 5.65 lakhs by taking loan on last date 31st july 2012.
    My query is that can he get refund if he purchase property in stipulated time if he invested fully or partially in plot or flat or constructed a house???

    Reply

  4. rkjindal Says:

    THE ARTICLE CLEARS THE DOUBTS ABOUT THE TIME FRAME IN WHICH THE NEW ASSET SHOULD HAVE BEEN ACQUIRED. MY PROBLEM IS THAT WE SOLD THE HOUSE DEPOSITED THE CAPITAL GAIN AMOUNT IN THE SBI CAPITAL GAIN ACCOUNT SCHEME. BUT THERE ARE TWO DEFAULTS MADE BU US.NO.1 WE HAVE NOT SHOWN THE CAPITAL GAIN DETAIL IN THE BELATED I T REURN FILED IN FORM NO. 1 FOR THE aSSTT. YEAR 2010/11. 2ND DEFAULT THAT 3 YEARS HAS ELAPSED BUT YET THERE IS NO INVESTMENT MADE BU US. THE 3 YEARS EXPIRES IN SEPTEMBER 2012. PL. ADVISE. MY EMAIL ID IS [email protected]
    rkjindal ca

    Reply

  5. Harshal Says:

    I have sold my flat in Aug2012. I want to invest this amount for paying for another house(New) which is under construction since 2007(huge complex). The agreement and registration for new house was done in 2008, but yet it is around 60% completed. Will the capital gain be taxable in this case as the construction will be hopefully completed before 3 years now on.

    Reply

  6. parasuram Says:

    My brother sold his site for 40 lakhs in sept13 and is planning to buy another site or flat.Is it necessary that he should put all the money in capital plus account or can wait till as he is thinkigg of buying another site

    Reply

  7. M.Subbu Krishnan Says:

    Assessee sold the property during the financial year 2009-10. Due date for deposit scheme is due on 31/07/2010 but the assessee has not deosited in the above scheme.Instead he paid advance of Rs.30 Lakhs for purchase of land for house construction.Purchase deed was registered on 02.09.2010 for Rs.107 lakhs is., about Rs.77 Lakhs paid on 02.09.2010 since the advance of Rs.30 Lakhs already paid. Is it compulsory to route this through capital gain A/c Scheme to avail Exemption U/s.54F

    Reply

  8. ankush Says:

    sir
    i had sale my residendial property in feb 2014.
    now as i am unable to find suitable property for myself now…
    so should i had to put my amount in capital account before 31 july 2014 or i can kep it for next one year with me…plzzz tell me the best answer

    Reply

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