TEXT: Subhash Lakhotia
Tax payers who would like to invest in residential property or in constructing residential property so as to save tax in respect of long-term capital gains can take advantage of Capital Gains Accounts Scheme.
For all those tax payers who derive longterm capital gains, a lot of tax planning can be adopted by taking advantage of the Capital Gains Accounts Scheme. Way back in 1988, the Capital Gains Accounts Scheme was introduced for the first time and since then it has been very popular amongst tax payers, particularly those tax payers who would like to save income tax in respect of long-term capital gain derived by them.
Before we go further to find out the advantages and the proceedings in connection with Capital Gains Accounts Scheme, it is worthwhile to remember that the benefit of the Capital Gains Account Scheme can be taken only in case of long-term gain. Thus, when a tax payer derives short-term capital gains, there is no possibility of saving income tax by taking recourse to Capitol Gains Account Scheme.
Mainly, the advantage of Capital Gains Account Scheme can be derived by individuals and Hindu Undivided Family. To be more precise, all those tax payers who would like to invest in buying a residential property or in constructing a residential property so as to save tax in respect of long-term capital gain can find much advantage in this scheme known as Capital Gains Accounts Scheme 1988.
Before analysing the salient features of this scheme, it may be recalled here that to save tax on capital gain, various provisions are contained in the Income Tax Act, 1961 whereby if investment is made within two years from the date of sale one can save capital gain tax in respect of long-term gain, especially if the investment is made in acquiring another residential property.
Similarly, if the tax payers were to construct a residential property then the time period for completing the construction is within three years from the date of sale. Now, in between comes the role of Capital Gains Accounts Scheme.
All those tax payers who are taking advantage of the above mentioned schemes of making investment in residential property are advised to take advantage of the Capital Gains Accounts Scheme, especially if they are not able to make investment in residential property by the last date of filing the income tax return.
For example, if a person derives long-term capital gain on April 10, 2010, in that event he must make the investment in acquiring new residential property within two years from the date of sale or when the said property is proposed to be constructed then within three years from the date of sale.
However, there is also a condition that if the tax payer is not able to buy or construct the said property by the last date of filing the income tax return, in that event the amount has to be deposited in the Capital Gains Accounts Scheme. For example , as mentioned above, if the property is sold on April 10, 2010, the tax payers can buy or construct the property by July 31, 2011, which happens to be the last date of filing the income tax return.
In a situation where such purchase or construction is not completed by July 31, 2011 in that event the money must be deposited on or before July 31, 2011, that is, the last date of filing the income tax return in terms of the Capital Gains
The account under Capital Gains Accounts Scheme cannot be opened in all the branches and with all the banks. The government has identified the following 28 banks to accept the deposit under Capital Gains Accounts Scheme 1988.
These banks are: State Bank of India, State Bank of Bikaner & Jaipur, State Bank of Hyderabad, State Bank of Indore, State Bank of Mysore, State Bank of Patiala, State Bank of Saurashtra, State Bank of Travancore, Central Bank of India, Bank of India, Punjab National Bank, Bank of Baroda, UCO Bank, Canara Bank, United Bank of India, Dena Bank, Syndicate Bank, Union Bank of India, Allahabad Bank, Indian Bank, Bank of Maharashtra , Indian Overseas Bank, Andhra Bank, Corporation Bank, New Bank of India, Oriental Bank of Commerce, Punjab & Sind Bank & Vijaya Bank.
All branches of these banks except the rural branches are authorized to receive the deposit and maintain account under Capital Gains Accounts Scheme, 1988. Other than the above, no other bank is authorized to accept the deposit under Capital Gains Accounts Scheme.
In terms of the Capital Gains Accounts Scheme, 1988 there are two types of deposit accounts and the tax payers can choose any one of the account which he likes. The first account is known as Deposit Account A, wherein the deposit shall be in the form of saving deposit, while the deposit in Deposit Account B will be in the form of term deposit with an option available to the assessee to keep the deposit either as cumulative or noncumulative deposit.
Whenever the tax payer is interested to open an account in terms of Capital Gains Accounts Scheme, the depositor shall make an application in Form No A and exercise the option whether the amount is to be deposited in Account A or in Account B. It is also possible for the assessee to deposit the money in both the accounts.
In case of deposit under Account A, the bank shall issue a bank passbook to the depositor, where all the amounts of deposits, withdrawals together with interest due shall be entered. In the case of deposit under Account B, the bank shall issue a deposit receipt in which will be mentioned the principal amount of deposit, the date of deposit and the date of maturity of the deposit. It is possible to transfer the deposit account from one branch of a bank to another branch of the same bank.
Similarly, it is possible to convert the deposit Account B to the deposit Account A. As and when the money is required to be withdrawn for the purposes of making payment for the residential property, the assessee shall apply in form No C.
After receiving the application the bank shall permit the withdrawal of the amount. It may also be noted here that where the amount of withdrawal exceeds Rs 25,000, the bank will make the payment by way of crossed demand draft drawn in favour of the person to whom the depositor intends to make the payment.
Tax payers should also note that other than the initial withdrawal later on when the withdrawals are made by the tax payers, they shall furnish in Form No D in duplicate, the details regarding the manner and the extent of utilizing of the amount in respect of the immediately preceding withdrawal. The bank after receiving two copies of Form D from the accountholder will retain one copy and return the other copy to the tax payer.
The scheme further provides that the amount which has been withdrawn should be utilized for purchase or construction of the property within 60 days from the date of such withdrawal. The facility of nomination is also available to the deposit holder by filling up Form No E.
Finally, when the property has been purchased or the construction has been completed and now the tax payer desires to close his Capital Gains Account Scheme then he shall make an application with the approval of the assessing officer. The application for closure of the account will be in Form G.
Whenever you are contemplating to make a deposit in respect of Capital Gains Account Scheme, either by way of a savings account or a fixed deposit account , then please remember that you do not open the normal savings bank account or a normal saving bank deposit but specifically fill up No A and then make the deposit with the concerned bank under the Capital Gains Accounts Scheme.
Once the deposit is made by you either in the savings account or in the fixed deposit account, please ensure that it is clearly mentioned in the account opened that it is for Capital Gains Account Scheme. A large number of tax payers commit the mistake of just opening a bank account with a bank to save capital gains and later on use the money for buying or constructing the residential property.
But please do remember that the income tax law very specifically provides that the money which has not been used for buying or constructing a residential property, such money should be kept exclusively under Capital Gains Accounts Scheme under a separate bank account in terms of Capital Gains Accounts Scheme.
Also do remember that the deposits in these accounts can be made in one lump sum or in instalment.
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