Capital Gains Account Scheme to save tax

Apr 18 2013, 16:26 IST
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SummaryIntroduced in 1988, it is a popular scheme for people who wish to take advantage of long-term capital gains along with tax exemption.

Introduced in 1988, it is a popular scheme for people who wish to take advantage of long-term capital gains along with tax exemption. The Income Tax Act of India allows certain exemptions on long-term capital gain schemes under Sections 54, 54B, 54D, 54F and 54G, which are not provided on short term capital gain.

Who can benefit from CGAS?

Individuals and members of HUF (Hindu Undivided Family) can benefit from Capital Gains Account scheme (CGAS). Basically, all those taxpayers who want to buy or construct a residential property to save income tax can benefit from CGAS 1988. If any investment with respect to purchase of a property is made within two years from the date of sale of a property, the taxpayer can save on tax on capital gain.

Taxpayers can avail exemptions under the CGAS only when the amount of capital gain, or net consideration, is deposited by the last date for filing the income tax return.

For example: If Mr Sen sells a property for a lump sum amount, also termed as a long-term capital gain, on June 10, 2011, he must invest that amount either in the purchase or construction of a new residential property within two years and three years respectively from the date of sale. If he is not able to buy or construct a property before the last date for filing income tax return, he should deposit the unused amount in CGAS.

In this example, Mr Sen sold his property on June 10, 2011; hence, he can buy or begin construction on a new property by September 30, 2012. If he fails to do so he must deposit the money on or before September 30, 2012 in CGAS.

Types of Deposits

Deposit Account Type A

All deposits into this account are in the form of savings. This account is suitable for taxpayers who want to construct a house over a long period as withdrawals are permitted according to the provisions of the scheme.

Deposit Account Type B

This account is similar to a term deposit as it is payable after a fixed time duration. The depositor can opt to keep the deposits cumulative or non-cumulative and withdrawals from this account can be made only after a stipulated duration.

Opening a CGAS Account

Every taxpayer keen to open a CGAS account needs to apply to the bank and fill a form in which the

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