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Introduction
Capital gains arise when the consideration received on transfer or sale of a property is more than its indexed cost. The amount of capital gains that is not appropriated by an assessee towards the purchase of another property within one year from the date of transfer of the original property, or that is not utilised by him for the purchase or construction of a new property before the date of furnishing the return of income, should be deposited by him in a specified nationalised bank. The amount should be invested in a 'Capital Gains Account Scheme'under'the Capital Gains Account Scheme, 1988. The scheme is applicable to all assessees having capital gains. The deposits may be made in one lump sum or in installments at any time. The amount should be deposited before the due date for filing income tax returns.

Who are eligible to take the advantage?
Mainly, the advantage of Capital Gains Account Scheme can be derived by individuals and Hindu Undivided Family. To be more precise, all those tax payers who would like to invest in buying a residential property or in constructing a residential property so as to save tax in respect of long term capital gain can find much advantage in this scheme known as Capital Gains Accounts Scheme 1988.

Before analysing the salient features of this scheme, it may be recalled here that to save tax on capital gain, various provisions are contained in the Income Tax Act, 1961 whereby if investment is made within two years from the date of sale one can save capital gain tax in respect of long-term gain, especially if the investment is made in acquiring another residential property.

Similarly, if the tax payers were to construct a residential property then the time period for completing the construction is within three years from the date of sale. Now, in between comes the role of Capital Gains Accounts Scheme.

All those tax payers who are taking advantage of the above mentioned schemes of making investment in residential property are advised to take advantage of the Capital Gains Accounts Scheme, especially if they are not able to make investment in residential property by the last date of filing the income tax return.

For example, if a person derives long-term capital gain on April 10, 2014, in that event he must make the investment in acquiring new residential property within two years from the date of sale or when the said property is proposed to be constructed then within three years from the date of sale.

However, there is also a condition that if the tax payer is not able to buy or construct the said property by the last date of filing the income tax return, in that event the amount has to be deposited in the Capital Gains Accounts Scheme. For example, as mentioned above, if the property is sold on April 10, 2014, the tax payers can buy or construct the property by July 31, 2015, which happens to be the last date of filing the income tax return.

In a situation where such purchase or construction is not completed by July 31, 2015 in that event the money must be deposited on or before July 31, 2015, that is, the last date of filing the income tax return in terms of the Capital Gains Accounts Scheme.

List of Banks who can Accept Deposit -The account under Capital Gains Accounts Scheme cannot be opened in all the branches and with all the banks. The government has identified the following 28 banks to accept the deposit under Capital Gains Accounts Scheme 1988. These banks are:

State Bank of India,
State Bank of Bikaner & Jaipur,
State Bank of Hyderabad,
State Bank of Indore,
State Bank of Mysore,
State Bank of Patiala,
State Bank of Saurashtra,
State Bank of Travancore,
Central Bank of India,
Bank of India,
Punjab National Bank,
Bank of Baroda,
UCO Bank,
Canara Bank,
United Bank of India,
Dena Bank,
Syndicate Bank,
Union Bank of India,
Allahabad Bank,
Indian Bank,
Bank of Maharashtra,
Indian Overseas Bank,
Andhra Bank,
Corporation Bank,
New Bank of India,
Oriental Bank of Commerce,
Punjab & Sind Bank
Vijaya Bank.

All branches of these banks except the rural branches are authorized to receive the deposit and maintain account under Capital Gains Accounts Scheme, 1988. Other than the above, no other bank is authorized to accept the deposit under Capital Gains Accounts Scheme.

Account Type Under Capital Gains Accounts Scheme- Under the scheme there can be two types of accounts.

Deposit Account A: This account is like a savings deposit account. Withdrawals may be made from the account from time to time, subject to other conditions of the scheme. This account is suitable for assessees who are planning to construct a house over a period of time.

Deposit Account B: This account is like a term deposit that is payable after a fixed period of time. The interest earned on the deposit may either be withdrawn periodically or it may be reinvested.

In order to open the account, an assessee must fill up the prescribed application form in duplicate. Further, the type of account -A or B -is to be specified. In case Deposit Account B is opted for, it has to be specified whether the account will be cumulative or non-cumulative. The proof of such deposit should be attached with the income tax returns.

Both the accounts will be eligible to interest as per the guidelines of the Reserve Bank of India. Moreover, a depositor may make or change nominations to the account by filling in the relevant forms.

The amount can be utilised in accordance with the scheme which the Central Government may frame. The amount withdrawn should be utilised for the purpose of purchase or construction of a house. The amount withdrawn should be utilised for the purpose within sixty days of the withdrawal. Any unutilised amount should be redeposited in Deposit Account A.

The amount already utilised by an assessee for the purpose of purchase or construction of a new property together with the amount deposited will be deemed to be the cost of the new property. In case the amount deposited is not utilised wholly or partly for the purchase or construction of the new property within the period specified, then the unutilised amount will be charged as income of the previous year in which the period of three years from the date of the transfer of the original property expires.

Further, an assessee will be entitled to withdraw the amount in accordance with the provisions of the scheme.

The withdrawals from Deposit Account A can be made through a prescribed form. In case of Deposit Account B, a depositor will first have to transfer the amount to Deposit Account A, and then make the withdrawal. The amounts can be transferred from one branch of a bank to another branch of the same bank only. A depositor may close the account with the approval of the assessing officer.

Forms C and D-Similarly, it is possible to convert the deposit Account B to the deposit Account A. As and when the money is required to be withdrawn for the purposes of making payment for the residential property, the assessee shall apply in form No C. After receiving the application the bank shall permit the withdrawal of the amount. It may also be noted here that where the amount of withdrawal exceeds Rs 25,000, the bank will make the payment by way of crossed demand draft drawn in favour of the person to whom the depositor intends to make the payment. Tax payers should also note that other than the initial withdrawal later on when the withdrawals are made by the tax payers, they shall furnish in Form No D in duplicate, the details regarding the manner and the extent of utilizing of the amount in respect of the immediately preceding withdrawal. The bank after receiving two copies of Form D from the accountholder will retain one copy and return the other copy to the tax payer.

Forms E and G- The scheme further provides that the amount which has been withdrawn should be utilized for purchase or construction of the property within 60 days from the date of such withdrawal. The facility of nomination is also available to the deposit holder by filling up Form No E. Finally, when the property has been purchased or the construction has been completed and now the tax payer desires to close his Capital Gains Account Scheme then he shall make an application with the approval of the assessing officer. The application for closure of the account will be in Form G. Whenever you are contemplating to make a deposit in respect of Capital Gains Account Scheme, either by way of a savings account or a fixed deposit account, then please remember that you do not open the normal savings bank account or a normal saving bank deposit but specifically fill up No A and then make the deposit with the concerned bank under the Capital Gains Accounts Scheme.

Opening a bank account for Capital Gains Account Scheme - Once the deposit is made by you either in the savings account or in the fixed deposit account, please ensure that it is clearly mentioned in the account opened that it is for Capital Gains Account Scheme. A large number of tax payers commit the mistake of just opening a bank account with a bank to save capital gains and later on use the money for buying or constructing the residential property. But please do remember that the income tax law very specifically provides that the money which has not been used for buying or constructing a residential property, such money should be kept exclusively under Capital Gains Accounts Scheme under a separate bank account in terms of Capital Gains Accounts Scheme. Also do remember that the deposits in these accounts can be made in one lump sum or in instalment.

Things to Keep in Mind
? CGAS does not allow any withdrawals, except for the specified purpose (of buying the house), even of interest. More, the investor is required to pay tax on this interest (to which he has no access) on an accrual basis out of his other income.

? Even if the sale is effected in, say, the first month of the financial year (say, April 2011), the taxpayer may deposit the amount in CGAS on the last date for filing returns. In other words, he can freely utilise this money for 15 months (April 2011 to July 2012) as he likes.

? We have already discussed the fact that if the amount is not utilised wholly or partly for the desired purpose, within the specified period, the unutilised amount shall be treated as capital gains of the year during which the specified period expires.

Source: www.taxguru.in