De-Tax. Keep the taxman at bay

“Nothing is certain but death and taxes”, someone said. And, taxes are doubly certain when you make gains from the sale of assets, including land and residential property.

Tax laws provide some respite if you invest the gains in certain assets within a specified period of time.

But, what if the due date for your tax return filing is fast approaching and the paperwork for the new investment has not been completed? Besides, chances that you may not zero-in on the new investment before filing your return are also high. To reduce your tax burden in such cases, you can park the amount in a ‘capital gain account’.

A capital gain account can either be a savings account or a term deposit. Under the latter, both cumulative and non-cumulative options are available.

Several public and private sector banks offer savings/deposit account under the ‘Capital Gain Account Scheme’ (CAGS). However, the terms and conditions may vary slightly from one bank to another.

SBI, for instance, asks for a minimum amount of ₹1,000 in case of term deposits, while there is no upper ceiling. IDBI Bank, on the other hand, keeps the base amount higher at ₹10,000; ₹100 crore is the maximum that one can invest here. Tax laws require capital gains parked in this account to be invested in other eligible assets within the specified time period ( two or three years).

But some banks also offer to hold the investments for longer periods; many banks don’t explicitly specify a maximum holding period.

However,investors must keep in mind that you can use the CAGS for parking your gains only until you zero-in on a specified asset to invest the gains/sales proceeds. If you don’t invest the gains in eligible assets within the specified time, it will become taxable.

The interest rate on the capital gain savings account is similar to what the bank offers for its normal savings accounts.

Interest will be credited at the end of each half-year. For term deposits too, the rates are akin to normal deposits of a similar tenure.

For deposits under the non-cumulative scheme, interest will be paid out every quarter.

In normal term deposits, senior citizens tend to get slightly higher rates. For CAGS deposits, most banks don’t offer special rates for seniors barring one or two like IDBI Bank.

The account can be opened by filling up a simple application form. Your photo, proof of identity /PAN and proof of address will be required. Nomination facility is available.

Note that interest income from CAGS is taxable. Also, unlike normal fixed deposits, no loan can be taken against a CAGS deposit.

Rules allow opening of both a term deposit account and savings account simultaneously and also conversion of one into another.

Since the primary purpose of parking money in this scheme is to fund a new asset, a savings account would be more convenient in many cases. Say you want to construct a new house with the gains/sale proceeds of the old house. This would involve periodic withdrawals towards expenses.

In case you have a term deposit account, the amount needs to be transferred to a savings account before any withdrawals can be made.

This could involve premature withdrawal/conversion of the term deposit that may attract penalties.

Also, there are other rules to be complied with for withdrawals. To prevent misuse, from the second withdrawal onwards, details regarding the manner and extent of utilisation of the amount of the immediately preceding withdrawal must be submitted.

This apart, the amount withdrawn must be utilised within 60 days from the date of withdrawal and the amount or any part thereof which has not been so utilised must be re-deposited immediately.

If some sums lie unused and you want to close the account, an application has to be made to the bank with the approval of the Assessing Officer in your jurisdiction. The bank will then credit the balance with interest to your normal bank account.

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