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Capital gain account option

Mihir (Wealth Manager) (5293 Points)

24 September 2013

An individual is selling his residential property and will purchase another residential property and avail exemption u/s 54 within the same financial year. He wants to know whether depositing the sale proceeds in the capital gain account is mandatory. Can he deposit the sale proceeds in his saving bank account and then make the payment to purchase another property? Will this exemption be accepted or rejected ?

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6 Replies

Prashant Kini (Article Assistant) (154 Points)
Replied 24 September 2013

Where capital gains amount is not utilized before the time limit prescribed u/s 139, then the amount shall be kept in Capital Gains Account scheme. Where capital gains are invested in specific assets qualified for exemption then there is no need to route the same through capital gains account scheme

Mihir (Wealth Manager) (5293 Points)
Replied 25 September 2013

Thanks Mr. Prashant.

Does that mean if an individual is going to invest in another property before 31st march or before 31 july, he need not deposit the sale proceed in capital gain deposit account ?

MANISH (student ) (172 Points)
Replied 25 September 2013

Originally posted by : Mihir
	Thanks Mr. Prashant. Does that mean if an individual is going to invest in another property before 31st march or before 31 july, he need not deposit the sale proceed in capital gain deposit account ?

Yes U r right.

Dont need to deposit that amount in CGEA.

CA Pallav Singhania (❤ Work Hard Party Harder ❤) (32322 Points)
Replied 25 September 2013

Agreed with above replies,

However,Taxpayers can avail exemptions under the CGAS only when the amount of capital gain, or net consideration, is deposited by the last date for filing the income tax return.

CA Pallav Singhania (❤ Work Hard Party Harder ❤) (32322 Points)
Replied 25 September 2013

CGAS is only for parking. You can park for a maximum of three years.

This is when you intend to buy a property but are not buying immediately because you get two years of time from the date of sale or three years if you want to construct the house.

But if you are not buying the house before filling your ITR or due date of your ITR, you will have to pass this money in CGAS.

It is like a fix deposit in a nationalized bank or State Bank of India.

As public sector bank rate interest will be applicable on the fixed deposit (FD). It is similar but you cannot withdraw money in between as only this money can be used for buying a house.

If you want to buy a house that money can be used but you cannot withdraw it before three years for your personal use other than buying a house.

CGAS is only for parking. You can park for a maximum of three years. This is when you intend to buy a property but are not buying immediately because you get two years of time from the date of sale or three years if you want to construct the house. But if you are not buying the house before filling your ITR or due date of your ITR, you will have to pass this money in CGAS. It is like a fix deposit in a nationalized bank or State Bank of India. As public sector bank rate interest will be applicable on the fixed deposit (FD). It is similar but you cannot withdraw money in between as only this money can be used for buying a house. If you want to buy a house that money can be used but you cannot withdraw it before three years for your personal use other than buying a house.

Read more at: https://www.moneycontrol.com/news/tax/heres-how-you-can-benefitcapital-gain_792238.html?utm_source=ref_article

Mihir (Wealth Manager) (5293 Points)
Replied 25 September 2013

The problem is that when CGAS is opened, the withdrawals can be made only to make payments toward purchase of property in favour of the seller/builder and no others. A letter from the seller/builder is required for bank to issue a DD from the account. The bank also says that a letter from ITO is required to close this account. So no other payments can be made from this account such as interiors, stamp duty, registration, legal fees, brokerage etc. So the bank is recommending that deposit only that amount which shall be utilised to purchase another property, the remaining portion can be deposited in saving account. Some banks are even going to the extent of demanding a copy of sale deed to open the account.

So if a person is going to invest in another property before 31st march or 31st July, he may deposit in saving account and not in CGAS.

Many thanks