What is a capital gain account and how to open it?

Before we talk about the capital gain account scheme, it is essential to understand what a capital gain is.

Capital gains are the profit that you get when you sell an asset of yours. It can be short-term or long-term, and they are taxed accordingly.  The short-term capital gains are treated as your income and taxed as per your current income tax slab rate, and the long-term capital gains are taxed flat at the rate of 20 per cent.

However, if you reinvest your capital gains within a specific time, you will be eligible for tax relief. Under Sections 54 and 54F, if you invest your capital gains in residential property and under Section 54EC if you invest your capital gains earned in bonds, you can save taxes.

What is the Capital Gains Account Scheme?

Sometimes we want to reinvest our capital gains but are unable to do so, before filing the income tax return for the coming fiscal year. So, if you think that you need more time, you can open a Capital Gain Account Scheme or CGAS.

The capital gain account can be opened with any bank. The amount you put in this account can also be withdrawn at any time you like. You can withdraw the same to buy a house, renovate it, or save long-term capital gains tax.

This scheme was introduced in 1988. You can open a capital gain account in any of the 28 banks such as State Bank of India, Syndicate Bank, Central Bank of India, IDBI Bank, Bank of Baroda, Corporation Bank, etc.

With this Capital Gain Account Scheme 1988, the people can keep their long-term capital gains protected until they invest it. Under Section 54, you can invest the capital gains earned from the sale of immovable property in residential property and under Section 54F, you can invest the capital gains derived from the sale of shares and bonds, in a residential property. A CGAS account can only be opened if you were unable to invest it in a property before filing the ITR or income tax return.

How to open a capital gain account?

You can open a capital gain account by filling Form A and submitting it in any of the government prescribed 28 banks. The documents needed will be proof of address, PAN card copy, and a photograph.

You can deposit the money in the account through a cheque, DD, or cash. The people are also allowed to deposit the amount in installments. It is essential to know that if you are going to deposit money through a cheque or demand draft, then the date of deposit will be the date on which the cheque or DD will be encashed.

To invest both in the house as well as the bonds, you will have to open different CGAS accounts.