To encourage the reinvestment of the capital gains that are made on the sale of the capital assets through the seller, the Indian government has given the relief from the tax of the capital gains, if such capital gains are reinvested in some specific assets in a mentioned time limit. In most of the cases, the available time limit is longer and sometimes even exceeds the due date of the return filing. To resolve this, the idea of Capital Gains Account Scheme (CGAS) is introduced.Read more
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This scheme was introduced in the year 1988 by the Central Government. As mentioned in the above paragraphs, the time limit provided to the depositors for re-investment and to avail the exemption, in most of the cases is longer than the due date for filing the income tax return. In these cases, the taxpayers are given the choice of depositing these underutilized gains of capital in the ‘Capital Gains Account’ that is introduced under the scheme that is known as capital gains account scheme.
Any capital gains that are invested in this scheme are eligible for the exemptions as same as the situation of further investment.
Any taxpayer who is not able to re-invest in the capital gains in a certain investment before providing the income tax return and certain timeline for investment is not expired is needed to deposit these unutilized gains of capital in the accounts of capital gains before providing the income tax return however not beyond the date that is due for providing the IT return.
The taxpayer’s category that has capital gains and is eligible for investment in Capital Gains Account Scheme from Section 54 to Section 54F of the IT - Act, 1961 is given below:
|Section Number||Person’s Category||Capital Gains Made On|
|54||HUF or Individual||Sale of the residential house|
|54D||Any Taxpayer||Compulsory acquisition of building and land|
|54B||HUF or Individual||Sale of the land that is utilized for agriculture|
|54E||Any Taxpayer||Sale of any capital asset that is there for a long term|
|54F||HUF or Individual||Sale of a long term capital asset that is not a residential property|
|54EC||Any Taxpayer||Sale of any capital asset that is there for a long term, which can be building or land or both|
|54G||Any Taxpayer||Asset transfer (building or plant, machinery, building, right in land, or land) in the situation of the shift of industrial undertaking from the urban area.|
|54GB||Any Taxpayer||Residential property transfer|
|54GA||Any Taxpayer||Asset transfer (building or plant, machinery, right inland or land, or some building) in the situation of industrial undertaking shifting from the Urban Area to Special Economic Zone.|
One can open a Capital Gains Account in any branch of an authorized bank excluding the branches of these banks in the rural area.
Steps to open a capital gains account:
Under the capital gains account scheme, one can make two types of deposits:
The term deposits can be a cumulative type or non-cumulative type, which means the interest, is cumulative and is reinvested with the principal or is paid periodically respectively.
The RBI time to time fixes the rate of interest for both types of deposits. The depositor can choose an appropriate deposit type by keeping his/her plans of investment, rate of interest, or fund requirement, etc. in mind.
As specified, there is no restriction over the withdrawals that one can make from his/her Type A account. However, from a Type B account, only premature withdrawals are allowed, which is possible after transferring the money to Type A account and there can also be some penalty.
Any withdrawn amount is needed to be utilized for some specific investment in 60 days of the withdrawal and the utilized amount can be re-deposited in the Type A account instantly.
Form C is submitted to withdraw money for the first time from an account and Form D for subsequent withdrawal by giving details of the type of utilization of money that is withdrawn previously. Therefore, no debit card or cheque is given to the depositor.
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