Customers 
Distributor 
Partner with Us 
Employee 
When you sell a long-term capital asset, such as a house or a piece of land, the profit earned is called capital gain. Under Indian tax laws, these gains are usually taxable. However, the government allows you to save tax if you reinvest the gains in certain assets within a specific period. But what if you are not ready to invest right away? This is where the capital gains account scheme can come to the rescue. It offers a way to safely park your money until you make the required investment.
Understanding the Capital Gains Account Scheme
The capital gains account scheme was introduced in 1988 to help taxpayers claim exemptions under Sections 54 to 54GB of the Income Tax Act. These exemptions only apply if you use the capital gains to invest in specified assets. However, the time required to reinvest in these assets can often be longer than the due date to file your income tax return. In such cases, you can deposit the capital gains into a capital gains deposit account scheme, which keeps your exemption claim valid. By depositing the amount, you are telling the tax authorities that you intend to invest, even if the investment has not happened yet.**
It is important to note that short-term capital gains are not eligible for this scheme.
Who Can Opt for the Capital Gains Account Scheme?
The capital gains deposit account scheme is available to individuals, Hindu Undivided Families (HUFs), companies, and other taxpayers, depending on the type of capital asset sold and the relevant section of the Income Tax Act.
Section | Capital Gains | Who can Opt? |
Section 54 | For sale of residential property | Individuals or HUFs. |
Section 54B | For sale of agricultural land | Individuals or HUFs. |
Section 54D | For compulsory acquisition of building and land | All taxpayers |
Section 54E | For sale of long-term capital assets | All taxpayers |
Section 54EC | For sale of long-term capital assets which can be building or land or both | All taxpayers |
Section 54F | For sale of long-term capital assets which are not residential property | Individual or HUFs |
Section 54G | Transfer of assets, which can be plant, building, land, or right in such thereof) in case an industrial undertaking is being shifted from an urban area | All taxpayers |
Section 54GA | Transfer of assets such as machinery, buildings, land, or rights in land when moving an industrial unit from an urban area to a Special Economic Zone (SEZ) | All taxpayers |
Section 54GB | Transfer of a residential property | All taxpayers |
To keep the tax exemption valid, the deposit must be made into the capital gains account before the due date of filing your income tax return or the actual date you file (whichever is earlier).
Where and How to Open a Capital Gains Account Scheme?
You can open a capital gains account at any authorised bank (except rural branches).
1. Obtain Form A at the bank.
2. Submit the form along with the required documents, such as PAN card, address proof, and a passport-size photo.
3. Make the deposit via cash, cheque, or demand draft.
4. You can open one or both types of deposit accounts (explained below).
5. If you plan to invest in both a house and government bonds, and receive exemptions for the same, you will need separate accounts.
6. Separate applications shall be made for availing exemption under different sections and separate capital gains accounts shall be opened.
7. The deposit can be made either in lump sum or instalments.
Types of Deposits Available under the Capital Gains Account Scheme
The capital gains deposit scheme offers two types of accounts:
1. Type A - Savings Deposit Account
It functions like a regular savings bank account and is suitable for individuals who may need to withdraw funds in parts or use the money gradually. The interest rate is similar to savings bank rates and is credited regularly.
2. Type B - Term Deposit Account
It operates like a fixed deposit. It is ideal for those who want to park the entire gain amount for a specific period without the need for frequent access. The maximum term for this account is three years. The interest can be cumulative (paid at maturity) or non-cumulative (paid periodically) as per your investment plans. Depending on the interest you are receiving, you can use a fixed deposit calculator to estimate the maturity amount for Type B accounts.
Some points to note about these accounts:
- You cannot take a loan against this account or use it as collateral.
- You can add up to 3 nominees using Form E. To update nominees, you will need to use Form F.
- The interest earned on these accounts is taxable. The banks will deduct TDS and issue a certificate stating the same. Remember to include this income while filing your return.
Withdrawing from the Capital Gains Account Scheme
The rules for withdrawal from the capital gains account scheme depend on which type of account you want to withdraw from.
- For Type A Accounts: You can withdraw at any time, but the amount must be used within 60 days for the intended investment. In case the funds are not used, they must be immediately redeposited.
- For Type B Accounts: Premature withdrawal is allowed, but only after transferring the amount to a Type A account first and following its procedures.
To withdraw, you need to submit Form C for the first withdrawal. For later withdrawals, you need to use Form D and mention how the earlier amount was used.
Understanding the rules for withdrawal from the capital gain account scheme is essential to avoid tax issues.
Closing the Capital Gains Account Scheme
- You can close the capital gains deposit scheme account only after getting approval from your jurisdictional income tax officer.
- To initiate closure, you must submit Form G along with the jurisdictional IT officer’s approval. In the unfortunate demise of the depositor, the nominee/ legal heir can use Form H to close the account.
- Before closing, ensure that all the funds were used as per the exemption rules. If funds are not used as per compliance, the amount may be liable for taxation. An income tax calculator can help you get an idea of how your tax liability may stand.
For personalised guidance, it is best to consult a tax advisor.
The capital gains scheme under Section 54 is a useful option for those who want to save tax and reinvest their capital gains properly. To make the most of the capital gains scheme, remember to keep your paperwork in order, know the timelines, and align the process with your investment plans while staying compliant.
** Tax exemptions are as per applicable tax laws from time to time.
