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Save capital gains tax by parking money in specified account

Author: Rajyashree Guha/Sunday, December 31, 2017/Categories: Tax

Save capital gains tax by parking money in specified account

Have you sold a property lately and wondering where to park the capital you earned from it? Section 54 of the Income Tax Act says to avail exemption from capital gains tax, the profit earned from the sale of property should be parked in the Capital Gains Account Scheme with an authorised bank to reinvest it later. 

According to Section 45 of the Income Tax Act, any profit or gain arising from the sale of capital asset that is held for more than 2 years is liable for long term capital gains tax.
To save a 20% tax cut, the taxpayer should purchase a house within 2 years or construct another house within 3 years of sale. A house bought one year before the sale of old property can also be declared for tax exemption as provided under sections 54, 54B, 54D, 54E, 54EA, 54EB, 54F , 54G and 54H.  

“However, if the due date to file tax returns falls before the capital is reinvested, then the amount can be parked in the Capital Gain Account Scheme in any branch of a public sector bank, in accordance with the Capital Gains Deposit Accounts Scheme, 1988,” said Rahul Joshi, CA and director of

The Capital Gain Account Scheme can be opened in any branch of a public sector bank, but not in rural branches. The amount deposited in these funds has to be utilised to purchase or construct a house within the specified period of 2 to 3 years. If the amount remains unutilised post the specified time period, then it will be taxed as income from long term capital gains. 

Two types of accounts are opened under the Capital Gain Account Scheme — Savings Bank Account (Deposit Account – A) and Term Deposit (Account B). A minimum balance of Rs 1,000 can be deposited, while there is no upper ceiling for deposits. The banks pay a normal savings and term deposit interest as applicable to bulk deposits. There is no loan facility provided under this scheme. There is also no special facilities provided for senior citizens. 

To claim tax exemption, the proof of the deposit in the Capital Gain Account Scheme has to be provided to the Income Tax department. Also, after closing the account, the taxpayer must provide the certificate or authority letter to the Income Tax department. 

“These incentives such as tax exemptions are provided by the government to encourage people to buy property,” said Joshi. 

Gummi Ram Reddy, president of Credai said, “Property is the safest form of investment. Other options like stocks and the like are volatile options. Property can be appreciated by the buyer.”

“There are very few disadvantages in investing in property. It is possible that the property rate can depreciate, causing it to lose value. But if one waits for a couple of years, it will regain its value. Other than that, there aren’t any downfalls in investing in real estate,” he said.

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