The Capital Gains Accounts Scheme, 1988 is a scheme that allows taxpayers to defer the payment of capital gains tax by depositing the proceeds of the sale of a capital asset in a special account with a designated bank. The amount deposited in the account cannot be withdrawn for a period of two years or more, depending on the type of capital asset sold.
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Benefits of the Capital Gains Accounts Scheme:
Deferment of tax
The taxpayer can defer the payment of capital gains tax until the amount deposited in the account is withdrawn.
Investment opportunities
The taxpayer can invest the amount deposited in the account in various financial instruments, such as fixed deposits, bonds, and mutual funds.
Tax-free income
The interest earned on the amount deposited in the account is exempt from tax.
Eligibility
The Capital Gains Accounts Scheme is available to all taxpayers, including individuals, Hindu undivided families (HUFs), partnerships, companies, and trusts.
Types of capital assets covered
The Capital Gains Accounts Scheme can be used to defer or delay the payment of capital gains tax on the sale of the following capital assets:
- Land and buildings
- Shares and securities
- Units of a unit trust scheme
- Gold and silver
- Other assets specified by the government
Procedure
To avail of the Capital Gains Accounts Scheme, the taxpayer must open an account with a designated bank and deposit the proceeds of the sale of the capital asset in the account within 60 days from the date of sale. The taxpayer must also submit an application to the bank along with the following documents:
- Form A (application for opening an account)
- Copy of the sale deed or other instrument evidencing the transfer of the capital asset
- Capital gains tax computation statement
Withdrawal
The money deposited in the Capital Gains Accounts Scheme cannot be withdrawn for a period of two years or more, depending on the type of capital asset sold. However, the taxpayer can withdraw the amount earlier in certain cases, such as:
- To purchase a new house
- To repay a housing loan
- For medical expenses
- For the education of children
- For the marriage of children
Taxation
The amount withdrawn from the Capital Gains Accounts Scheme is taxable as capital gains in the year of withdrawal. The taxpayer can claim indexation benefit on the capital gains, which will lower the amount of tax payable.
Conclusion
The Capital Gains Accounts Scheme is a beneficial scheme for taxpayers who want to defer the payment of capital gains tax. The scheme also offers investment opportunities and tax-free income on the interest earned on the amount deposited in the account.
