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Capital Gains Account Scheme Demystified

Background
As most of you would be aware, one of the options to save Tax on Long Term Capital Gains is to utilize such gains/sales amount to
- Buy a residential property within 2 years from the date of sale, or
- Construct a residential property within 3 years from the date of sale.  

The capital gains could be earned out of the sale of residential property, shares, family business, farm house, agricultural land, etc.

Objective
However, till the amount is fully utilized for the specified purpose, it has to be kept in a separate bank account. This is where Capital Gains Account Scheme, 1988 comes into the picture. It lays down the operative guidelines for this special and separate bank account called the Capital Gains Account.

When to Deposit
Of course, you don't have to immediately transfer your money to this Capital Gains Account. You get time until the due date of filing your Income Tax returns. So if you are a salaried individual and you have made capital gains in 2013-14, you will have to open and deposit the unutilized amount in this separate Capital Gains Account on or before July 31, 2014.

Types of Deposits
Type A: Similar to a Savings Account, where withdrawals can be made from from time to time for the specified purpose. 

Type B: Similar to a Term Deposit, where the withdrawal can be made only after the period of deposit is over. For premature withdrawal, interest applicable for the actual period of deposit minus 1% penalty would be payable.

Deposits can be made either as lump sum or in instalments. These deposits cannot be used as a security to borrow any loan or create any lien whatsoever.

Where to Deposit
Not all banks or all branches can open Capital Gains Account. The Govt. has authorized only the urban/metro branches (rural branches excluded) of 28 PSU banks such as SBI, its subsidiaries, UCO Bank, Bank of Baroda, Canara Bank, IOB, etc... to open and maintain Capital Gains Account. (About a year back, IDBI Bank was added to this list.)

Withdrawals
- All withdrawal requests, except the first one, have to be supported with details regarding the manner and utilization of the previous withdrawal. In case these details are not furnished, further withdrawal will not be permitted.
- The amount withdrawn has to utilized within 60 days; else it has to be redeposited.
- For amounts exceeding Rs.25,000, the payment shall be made in form of DD and directly to the person/builder to whom you intend to make the payment. 

Interest
Interest as per the prevailing market rates, is payable on such deposits. This interest is taxable and TDS too is applicable.

Closure
The account can be closed only with the approval of the Assessing Officer. On closing the account or on completion of 3 years, whichever is earlier, the unutilized amount shall become liable for capital gains tax.

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