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What is Capital Gain Account? | CGAS 1988: Features, Operations & Tax Benefits

Updated: | Sun, 30 May 2021 04:46 PM (IST)

 

What is Capital Gain Account?



TABLE OF CONTENTS

 

 

 

WHAT IS A CAPITAL GAIN ACCOUNT?

Selling off property may attract a liability to pay Capital Gains Tax. However, the government offers tax relief to individuals who reinvest their capital gains to any other specified asset within a specified period. You can park your funds in a Capital Gain Account under Capital Gains Account Scheme 1988, for the time being, until it is reinvested, and can claim exemption of Long Term Capital Gains Tax on sale of Capital Assets.


This Account can be opened in authorized branches of SBI and other PSU Banks. Rural Branches of these banks are not authorized to open capital Gain Account.

 


WHO CAN OPEN A CAPITAL GAIN ACCOUNT?

Any Resident Individual, a body of Individuals, Non-Individuals like Partnership Firms, Companies, HUF (Hindu Undivided Family), etc., Non-Resident Indians (NRIs), Resident but not Ordinary Resident (RNOR), Artificial judicial persons who have capital gains, taxable in India.

 

A deposit can be made under the provisions of section 54, section54B, section 54D, section54F, or section 54G by any depositor intending to avail the benefits of the scheme.

 


TYPES OF DEPOSITS

You can keep your funds in two types of deposit accounts:

1)     Deposit Account-A – which shall be in the form of Savings Bank Deposit

2)     Deposit Account-B  - which shall be in the form of Term Deposit

 

APPLICATION FOR OPENING OF ACCOUNT

A depositor shall apply in Form A to the bank and has the option to deposit the amount in Deposit Account-A or Deposit Account-B or both. The payment for the deposit can be made in cash, crossed cheque, or demand draft along with the application. The interest on the deposit shall be payable as per the prevailing rates on the type of deposit you have made.

 

In the case of Deposit Account-A, you will receive a passbook from the bank and in the case of Deposit Account-B, you will be issued a receipt by the bank. In case of loss of passbook or receipt, you can apply for a duplicate copy to the bank and the same will be issued to you.

 


TRANSFER OF THE ACCOUNT

An account can be transferred from one branch to the other branch of the same bank. Any deposit in Deposit Account-B shall be first transferred to Deposit Account-A by way of premature withdrawal or at maturity withdrawal by applying by Form-B. The Deposit Account-A can then be transferred to the other branch of the same Bank.


In case, you do not have a Deposit Account-A, and only have Deposit Account-B, you need to open a Deposit Account-A first, then transfer the funds to it, and then request for transfer of the account to another branch. After the transfer of your account, you can again request to open a Deposit Account-B from the funds kept in Deposit Account-A.

 


INTEREST

Interest rates prevailing for the Regular Savings Account Deposits and Term Deposits are applicable to the deposits made in this scheme. Interest due at the end of each half-year will be credited to your account. Interest earned on both Deposit Account-A and Deposit Account-B is liable to tax. TDS will be deducted from authorized personnel and a TDS certificate will be issued to you.

 


WITHDRAWAL FROM THE ACCOUNT

You have to apply in Form C along with the passbook for the withdrawal of the amount kept in Deposit Account-A. Except for your first withdrawal, you need to furnish Form D in two copies furnishing the details regarding the manner and the utilization of the funds of the immediate previous withdrawal. One copy will be retained by the bank and the other will be given to you by duly authenticating it.


If the amount to be withdrawn from Deposit Account-A is more than Rs. 25,000/- the payment will be made by way of crossed Demand Draft in favor of the person you intend to make payment.


If the withdrawal is to be made from Deposit Account-B, you shall first apply to transfer the amount to Deposit Account-A by Form-B and then proceed for the withdrawal from Deposit Account-A as mentioned above.


Note- In case of failure of furnishing the details of utilization of the previous withdrawal, the bank may refuse your request for further payments.

 


UTILIZATION OF AMOUNT WITHDRAWN

Any amount withdrawn from Deposit Account-A has to be utilized for the purpose of reinvesting in any other property or specified assets for which the deposit was made. The amount shall be utilized by you within sixty days from the date of withdrawal. If the amount has not been utilized within 60 days, it has to be re-deposited in Deposit Account-A immediately thereafter. If not re-deposited, it is subject to taxation as per the income tax laws.

 
NOMINATION BY DEPOSITOR

You can nominate up to three persons by filing Form E for your Deposit account. In case of your death, the nominee shall receive the amount in your deposit account. However, the nomination cannot be made for accounts opened on behalf of a minor or HUF, firm, companies, an association of persons, a body of individuals.


You can fill Form F to change the nominations made to your deposit accounts and update the same in your passbook or receipt as the case may be.


If your nominee is a minor, you can appoint an adult person to receive the amount due, in case of your death for the minority period of the nominee.


If you make more than one nomination, the nominee first named shall alone have the right to receive the amount in your deposit account. If the first nominee has also died the nominee second named shall receive the amount in your deposit accounts subject to producing proof of death of the nominee along with the proof of death of the depositor.

 


CHARGE OR ALIENATION

Any amount deposited in both Type-A and Type B accounts cannot be kept as security or collateral for any loan. Also, it cannot be used as margin money for any non-fund-based facility.

 


CLOSURE OF THE ACCOUNT

If you wish to close your account, you should make an application to the bank by Form G along with the approval of the Assessing Officer of your jurisdiction. The closure will be subject to terms mention in the authority letter of the Income Tax Department Official.

 

In case of your death, if you have made a nomination to the account, the nominee shall apply in Form H along with the approval of the Assessing Officer of your jurisdiction. The bank will then credit the amount to the nominee in his bank account.


In case, you have not nominated any person, your legal heir should follow the same procedure, subject to if there are more than one legal heirs, the legal heir who is making the claim shall have to produce the letter of disclaimer or letter of authorization from other legal heirs.


In this case, the Assessing Officer also shall obtain a Succession Certificate or a Probate of the will of the depositor or any letter of administration in case there is no will.


In all the above cases of closure of an account, passbook or receipt (as the case may be) of the account has to be submitted to the bank.

 

Must know points before opening a Capital Gain Account

You should open a CG account only if you are not going to invest your gains before the due date of furnishing the Income Tax Return. The Loan Facility is not available on CapGain Deposits. They can also be not used as collateral or margin for any non-fund-based facilities.


At the time of closure of the account, the depositor will have to produce a specific authority letter/certificate from Assessing Officer who has jurisdiction over the depositor. The closure would be permitted on the terms mentioned in the letter of authority. 



Various Forms used for the operation of Capital Gain Account


Form A

Application for opening an account 

Form B

Application for conversion of accounts from Type-B to Type-A or vice versa

Form C

Application for withdrawal of amount from account-A for the first time

Form D

Details regarding the manner and extent of utilization of the amount withdrawn from the account

Form E

Add Nominee to the Account

Form F

Change Nominee to the Account

Form G

Application for closing the account 

Form H

Application for Closure of Account by Nominee/legal heirs



Disclaimer:

This article is intended for informational purposes only, and should not be considered financial advice. You should consult a financial professional before making any financial decisions.


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