How to Open Capital Gains Account in 2022?

If claiming Capital Gains Exemption, a person must deposit the funds in a Capital Gains Account before the ITR filing deadline. This article goes over how to open a Capital Gains Account, as well as its tax benefits and features.

Consider the following scenario: Mr A sold a home in January 2022 and plans to claim capital gains exemption by buying a new home. To be eligible for the capital gains exemption, he must buy a new residential dwelling within two years, or before January 2024. However, the deadline for submitting an ITR for the Financial Year 2021-22 is July 31, 2022, therefore gains on the sale of a property must be reported in the ITR.

The government requires that the sum to be reinvested be deposited in a Capital Gains Account before submitting the ITR in such situations. The seller is not required to deposit the funds in the Capital Gains Account right away, and he can do so at any time before the ITR filing deadline, which is July 31st for non-audit cases and September 30th for audit cases.

By claiming this Capital Gains Exemption, the taxpayer will be able to avoid paying the 20% Long Term Capital Gains Tax that he would have to pay if he did not claim the exemption.

How to open Capital Gains Account?

The Capital Gains Account can be opened under the provisions of the Capital Gains Account Scheme, 1988, and the number of capital gains to be claimed as an exemption under the Capital Gains Account Scheme must be either re-invested or deposited in the Capital Gains Account before the due date for filing returns.

The government has designated 28 banks to open Capital Gains Accounts on the government’s behalf. Except for Rural Branches, all of these 28 banks’ branches are authorized to create a capital gains account. Private banks, like HDFC and ICICI, are not permitted to open Capital Gains Accounts, and they cannot be opened online.

To deposit the money in the capital gains account, the taxpayer must first apply for it by filling out Form A in duplicate (Download Form A). Along with Form A, he must also submit the following documents: proof of address, a copy of his PAN card, and a photograph. To open a Capital Gains Account, you must personally visit the bank location and present a physical copy of the relevant paperwork.

Along with the application, payment for deposit in the Capital Gains Account Scheme must be paid in cash, check, or demand draught. Such a deposit might be made in one lump sum or over time. The entire sum does not have to be deposited at the moment the account is opened. A small deposit can be made when the account is opened, and the balance can be deposited afterwards.

If the deposit is made by check or demand draught, the effective date of deposit to claim exemption will be the day on which the cheque or draught is received at the deposit office along with the application form, subject to the cheque or draught being realised.

If a taxpayer wishes to take advantage of a benefit under more than one part of the Income Tax Act, he or she must submit separate applications in the same manner for opening accounts under each section.

The Capital Gains Account can be opened at any authorised branch across India, and it does not have to be in the same state as the item being sold.

Other Features of Capital Gains Account

• Individuals and HUFs are the only ones who can open a capital gains account.
• The sum placed in the Capital Gains account cannot be used as a guarantee or security for any loan.
• The interest earned on such an account is not tax-free, and TDS must be deducted following the terms of the income tax legislation.
• By submitting a Form E application, the taxpayer can appoint nominees to this account. By submitting a Form F application, such a nomination can be changed.
• An application in Form G is necessary to close the Capital Gains Account. In the event of the depositor’s death, the nominee/legal heirs would be needed to file a Form H application.
• At the time of initiating an application for account closure, the depositor must also have the consent of the income tax officer who has jurisdiction over him or her.
• If the capital gains placed in the capital gains account are not used for the designated purpose before the given period expires, the unutilized capital gains will be taxed as Long Term Capital Gains in the financial year in which the period expires.

In the case of an individual who dies before the expiration of the 2/3 year term required under sections 54, 54B, 54D, 54F, and 54G, the unutilized deposit amount in the Capital Gains Account Saving Scheme cannot be taxed in the hands of the deceased. This sum is likewise not taxable in the hands of the legal heirs because the unutilized component of the deposit does not have the character of income in their hands, but rather is merely a part of the estate. (Circular No. 743, dated 06-05-1996)