Capital Gain Account Scheme {कैपिटल गेन अकाउंट योजना}

Updated on Jun 25, 2020

To promote capital gains earned on the sale of capital assets by the seller, the government has given the relief from capital gain tax if such capital gain is further invested in specific assets within a specified period. The availability of the period is longer and even increases the due date of filing return. So, to make taxpayers able to park their funds until they are invested for the prescribed purpose, the capital gain account scheme was launched. 

What is the Capital Gain Account Scheme?

Capital gain account scheme was initiated by the Central Government in 1988. The time is available to them for reinvestment and avails the exemption. The period might be more extended than the due date to file the return of income. In such cases, the taxpayer is provided with an option of depositing such underutilized capital gains in the “Capital gain account scheme”. 

When can a Person Deposit under this Scheme?

For any taxpayer who is not able to reinvest their capital gains in the particular investment before furnishing the return of income, within the specified period for the limit for the investment has not expired, it is not needed to deposit such unused capital gains account before furnishing the return of income (but not beyond the due date for furnishing return of income). 

Where Should the Account be Opened?

 Capital gains accounts can be opened in any of the branches of the authorized banks except rural branches of the authorized banks. Let’s discuss the procedure to open the capital gain account.

  • The account can be opened by making an application in duplicate in Form A.
  • Photograph, PAN, and proof of address are needed to open the account.
  • Deposits can be made by any of the ways such as cash, cheques, and demand draft. In the case of DD and cheque, the date of deposit will be the date on which cheque or DD is received in the deposit subject to its realization.
  • The deposit can be made either in instalments or lump sum.
  • Separate applications shall be made for availing exemptions under different sections, and separate capital gains accounts will be opened.

What are the Types of Deposits Available?

There are two types of deposits available under the capital gain account scheme which is as follows:-

  • Type A (Savings deposit):- Type A account is the same as the regular savings bank account of my bank where interest at a rate similar to saving bank account interest will be credited periodically and a passbook is also issued to the deposit holder. Just like savings deposit, Type A accounts provide better liquidity, and withdrawals can be made at the time.
  • Type B (Term deposit):- Type B account is the same as a fixed deposit account of a bank that provides interest at the rate applicable to term deposit and has restrictions similar to a term deposit. The maximum period allowed for the Type B account is three years. The depositor is needed to choose the term based on his plan for a particular investment as two years for the purchase of new house property or three years for construction. Like fixed deposits, the depositor would get a deposit certificate containing all details of deposit and is needed to be submitted at the time of withdrawal. 
  • Term deposit can either be cumulative or non-cumulative, i.e. interest is either cumulated or non-accumulated along with principal or paid at regular intervals respectively. The interest rate for both deposits is fixed by RBI from time to time. The depositor may choose the suitable type of deposit keeping in mind his plans for a particular investment, the requirement of funds, and rate of interest.

Withdrawal

As mentioned earlier, there are no restrictions to withdraw from the type A account. While the premature withdrawal of Type B is allowed, it is permitted only after transferring the amount of Type A account, and there may also be penalties.

Any amount withdrawn is needed to be utilized for a particular investment within 60 days of withdrawal, and any unutilized amount may be re-deposited to type A account immediately. Form C shall be submitted for withdrawal from an account for the first time and Form D for subsequent withdrawal providing details of the manner of utilization of money withdrawal earlier. Therefore, no chequebook or debit card is issued to the depositor.

Things to Know

  • There is an allowance of change like the deposit is allowed, such as savings to a term deposit or vice versa. But, any transfer from Type B to type A is regarded as a premature withdrawal. Also, transfer from one branch to another is allowed but not between different banks. 
  • Closure of both types of account needs approval from the jurisdictional income tax officer. Form G is required to be submitted for the closure of the account along with the judicial income tax officer’s permission. Form H shall be submitted for the closure of the account by the nominee or legal heir of the deceased depositor in the absence of nominee.
  • There is no loan facility against the capital gain account scheme. Deposit certificate can neither be given as collateral security nor as a guarantee and any charge made on the same. 

You will able to find the official notification from RBI here.

Frequently Asked Questions

Q: What are the best ways that can be used to minimize the incidence of capital gain?

  • By investing in capital gain bonds
  • By reinvesting in residential properties

Q: Explain the transfer related expenditures that can be minimized from the sale value of an advantage for the calculation of capital gain?

  • Brokerage charges
  • Stamp duty and registration fee
  • Travel expenses

Q: How many categories are there under the Capital Gain Account scheme?

Two main categories are of capital gain account scheme:

  1. Deposit Account A
  2. Deposit Account B

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WRITTEN BYVarsha Verma

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