All you need to know about Capital Gain Account Scheme

Section 54 of the Income Tax Act provides exemption from tax on long-term capital gains arising out of sale of house if the gains are invested in purchase of another house either a year before or within two years from date of transfer, or used for construction of a house within three years of date of transfer. It may be difficult to arrive at a purchase or construction decision before filing the tax return for the year in which the sale took place. However, the assessee can avail exemption by depositing the capital gain in an account opened under the Capital Gain Account Scheme ( CGAS).

Approved bank

The CGAS account can be opened only with an authorised/approved bank branch. Rural branches of banks are not included.

Form

An account opening form needs to be filled along with necessary documents including copy of PAN card, address proof and photograph. Two types of accounts can be opened—a CGAS savings account (Account A) or CGAS term deposit (Account B). Period of deposit is 3 years from date of transfer of original asset. The required choice needs to be mentioned in the form.

Payment

Entire capital gain from transfer of the property must be deposited to the CGAS account either by cash, cheque or draft.

Return filing

The proof of deposit into the CGAS account should be attached along with income tax return to claim exemption from long term capital gain tax for the financial year during which the transfer was made.

Withdrawal of funds
Funds can be withdrawn from CGAS account only for purchase or construction of house. An application mentioning the purpose needs to be submitted. Funds from Account B can also be withdrawn but have to be first transferred to Account A. Account B can be closed at maturity and proceeds transferred to Account A. While closing Account A, assessee is required to produce an authority letter or certificate from the income tax authorities.

Points to note
1. Funds withdrawn from CGAS account need to be utilised within 2 months.

2. No loan facility is allowed on the CGAS account.

3. Interest earned on CGAS deposit is taxable in the hands of the assessee.

The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.