On cap gain

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Rati Muk (Querist)
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31 August 2016 I have moved money into a capital gain account in a bank.now please let me know if the interest earned through this account should be mandatory for buying/building a house or can I use it for other purpose as well.

CA SAGAR M. AHUJA

CA SAGAR M. AHUJA (Expert)
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31 August 2016 The Interest on such account is not tax free and TDS also liable to deducted from such account.so, it will be consider your income from other source hence you can use it for any other purpose.
Thanks.

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Rati Muk

Rati Muk (Querist)
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22 April 2017 Thanks but I have parked funds in the capital gains savings account.Now according to u the principal amount to be used for purchasing property but what about the interest generated from this amount.Any withdrawals from this account needs form c and d to be filled

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Asha Kanta Sharma online

Asha Kanta Sharma

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09 August 2024 When you deposit money into a Capital Gains Account under Section 54 of the Income Tax Act in India, it is intended to help you claim an exemption on long-term capital gains tax when investing in residential property. Here’s how it works with regard to interest earned and withdrawals:

### **Interest Earned on Capital Gains Account**

1. **Interest Treatment:**
- **Interest Earned:** The interest earned on a Capital Gains Account is considered taxable income. It will be taxed as per your income tax slab rates in the financial year it is earned.
- **Purpose of Principal Amount:** The principal amount in the Capital Gains Account should be used for purchasing or constructing a new residential property to claim the exemption under Section 54.

2. **Usage of Interest:**
- **Flexibility:** The interest earned on the Capital Gains Account can be used for any purpose. There is no restriction on using the interest for purposes other than buying or constructing a residential property.
- **Tax Impact:** Ensure that you include the interest earned in your income tax return and pay tax on it accordingly.

### **Withdrawals from the Capital Gains Account**

1. **Withdrawal for Property Purchase:**
- **Form C and D:** Typically, Form C and Form D are used to claim exemption under Section 54, especially when funds are being utilized for the purpose of buying or constructing a property. However, for general withdrawals, these forms are not generally required.
- **Documentation:** When withdrawing from the Capital Gains Account to invest in property, you may need to provide proof of the transaction and ensure it aligns with the conditions specified for claiming the exemption.

2. **General Withdrawals:**
- **No Specific Forms:** For general withdrawals or for using the interest earned, you do not need to fill out Form C or D. Just ensure that any transaction from the account complies with the tax regulations.

### **Steps to Follow:**

1. **Claiming Exemption on Principal:**
- Ensure that the principal amount is used within the stipulated time frame (usually within 1 year before or 2 years after the date of sale of the original asset) for buying or constructing a residential property to claim exemption under Section 54.

2. **Reporting Interest Income:**
- Include the interest earned from the Capital Gains Account in your income tax return for the year. This income will be taxed as per your applicable income tax slab.

3. **Withdrawal Documentation:**
- Keep all documentation related to the withdrawals and utilization of funds for property investment. This will be useful if there are any queries or audits by tax authorities.

### **In Summary:**

- **Principal Amount:** Must be used for purchasing or constructing a residential property to claim the capital gains exemption.
- **Interest Earned:** Can be used for any purpose but must be declared as income and taxed accordingly.
- **Withdrawal Forms:** Generally, Forms C and D are not required for withdrawals of interest; they are more relevant for claiming the exemption on the principal amount.

**Consult with a Tax Professional:** It’s advisable to consult with a tax professional or financial advisor to ensure compliance with all tax regulations and to handle specific cases effectively.