CAPITAL GAINS ACCOUNTS SCHEME, 1988 - AN OVERVIEW

[Mr. M. GOVINDARAJAN]

                        The Capital Gains Accounts Scheme, 1988 ('scheme' for short) has been framed by the Central Government by virtue of powers conferred by Sec. 54(2), Sec. 54B(2), Sec. 54D(2), Sec.54F(4) and Sec. 54G(2) of the Income Tax Act.

                        Chapter IV of the Income Tax Act deals with the computation of income from capital gains. Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as provided in Sections 54, 54B, 54D, 54E, 54EA, 54 EB, 54F, 54G and 54H be chargeable to income tax under the head 'capital gains' and shall be deemed to be income of the previous year in which the transfer took place.

                        Sec. 54 deals with the profit on sale of property used for residence;

                        Sec. 54B deals with the capital gain on transfer of land used for agricultural purposes not to be charged in certain cases;

                        Sec. 54D deals with the capital gain on compulsory acquisition of lands and buildings not to be charged in certain cases;

                        Sec. 54F deals with the capital gain on transfer of certain assets not to be charged in case of investment in residential home;

                        Sec. 54G deals with the exemption of capital gains on transfer of assets in case of shifting of industrial undertaking from urban area.

                        Sec. 54(2) of the Income Tax Act provides where the amount of capital gain which is not appropriated by the assessee towards the purchase of new asset made within one year before the date on which the transfer of the original asset took place, or which is not utilized by him for the purchase or construction of the new asset before the date of furnishing the return of income under Sec. 139 shall be deposited by him before furnishing such return (such deposit being made in any case not later than the due date applicable n the case of assessment for furnishing the return of income under Sec. 139(1)) in an account in any such bank or institution as maybe  specified in, and utilized in accordance with, any scheme which the Central Government may, by notification in the Official Gazette, frame in this behalf and such return shall be accompanied by proof of such deposit; and, the amount if any already utilized by the assessee for the purchase or construction of the new asset together with the amount so deposited shall be deemed to be the cost of the new asset. Sec 54B(2), Sec. 54D(2), Sec.54F(2) and Sec. 54G(2) give same power to the Central Government to frame a scheme.

                        In this scheme there are two types of deposit accounts namely Deposit Account- A and Deposit Account-B. Deposit made under Account A shall be in the form of savings deposit and deposit made under Account B shall be in the form of term deposit either in the form cumulative or non cumulative.

Procedure for Opening Account:

1.      Every depositor who is desirous of opening an account or accounts under the scheme for the first time shall apply to the deposit office (any nationalized bank) in Form A in duplicate and tender the deposit amount payable;

2.      A depositor intending to avail of the benefit under more than one section of the Act shall make separate applications in the same manner for opening account or accounts under each of such sections;

3.      The depositor shall exercise his option whether the amount is to be deposited in Account-A or Account-B or in both accounts;

4.      If the depositor exercises his option to open account B the depositor shall also exercise his option as to whether the deposit is to be made as cumulative or non cumulative deposit;

5.      On receipt of application the deposit office shall open an account or accounts in the name of the depositor as opted by him.

Payment of Amount:

1.      Deposits may be made in one lump sum or in installments at any time on or before the due date of furnishing the return of income under Sec. 139(1) of the Act as is applicable;

2.      The payment of amount of deposit shall be made by the depositor either in cash or by crossed cheque or by draft along with the application;

3.      If the deposit is made by cheque or a draft then, subject to such cheque or draft being realized, the effective date of deposit for the purpose of claiming exemption under the Act will be the date on which the cheque or draft is received by the deposit office along with the application.

Issue of Pass Book or receipt:

1.      In the case of deposit under Account A the deposit office shall issue a pass book to the depositor wherein all amounts of deposits, withdrawals, together with interest due, shall be entered over the signature of the authorized officer of the deposit office;

2.      In the case of deposit under Account - B the deposit office shall issue a deposit receipt wherein the principal amount of deposit, date of deposit, date of maturity of deposit shall be entered over the signature of the authorized officer of the deposit office;

3.      In the event of loss or destruction of the pass book or receipt the deposit office, on an application made to it in this behalf issue a duplicate thereof.

Interest:

1.      Interest at the rate specified by Reserve Bank of India from time to time shall be allowed for each calendar month on the lowest balance at the credit of a deposit under Account-A, between the close of the 10^th day and the end of the month and shall be credited to the account at the end of each half year;

2.      Interest due at the end of each half year in respect of Account-A will be credited only when the amount is Re.1 or more;

3.      Interest at the rate specified by the Reserve Bank of India from time to time shall be allowed in respect of deposit under Account-B.  In case of cumulative deposit the amount of interest accrued will be deemed to have been reinvested and in case of non cumulative deposit the amount of interest will become due and payable at quarterly intervals;

4.      If a depositor applies for conversion of the account or withdrawal of the account or closure of the account, as the case may be, before completion of the period for which the deposit in Account-B has been accepted by the deposit office, the rate of interest payable in respect of such deposit shall be the one applicable to the period for which the deposit remained with the deposit office less one per cent penalty for a premature withdrawal on account of such conversion or withdrawal or closure, as the case may be, and any adjustment required to be made on account of such premature conversion, withdrawal or closure with respect to amount of interest already credited to the account of the depositor, shall be made by the deposit office against the amount lying to the credit of the depositor in account B.

Transfer and conversion of the account:

1.      A depositor may, if he so desires, apply for transfer of his account or accounts from one deposit office to another deposit office of the same bank;

2.      A depositor having a deposit in Account-B may, at any time, if he so desires, apply in Form B together with the deposit receipt, for transfer of the amount standing to his credit in Account-B to his deposit in Account-A; The depositor shall furnish the requisite particulars of his Account-A to which the amount from Account-B is required to be transferred;

3.      Where the depositor is not having a deposit in Account-A, he shall state such fact and also make a request for opening an Account A in his name as specified in Form B;

4.      If the request has been made for transfer of amount standing to the credit in account-B before the expiry of the specified period for which the deposit in Account-B was made, such request shall be treated as pre mature withdrawal of amount from deposit in the said Account-B and the amount of interest accrued, if any, in the said account-B shall be calculated by the deposit office;

5.      If the request has been made for transfer of amount standing to the credit in account - B after the expiry of the specified period in which the deposit in Account B was made, the amount of interest accrued in Account B shall be calculated at normal rate;

6.      On receipt of application the deposit office shall calculate the amount of interest till the date on which actual transfer of amount is made;

7.      Where the depositor does not have a deposit in account -A, an Account-A shall be opened in the name of the depositor and the amount standing to his credit in account-B shall then be transferred to Account-A as so opened.

Withdrawal from the Account:

1.      A depositor having account-A may, at any time after making the initial subscription, if he so desires, apply in Form C together with the pass book to the deposit office for the withdrawal of amount from the balance to the credit in Account A;

2.      If the withdrawal amount, other than the initial withdrawal, exceeds twenty five thousand rupees the depositor shall furnish in Form D in duplicate the details regarding the manner and extent of utilization of the amount immediately preceding withdrawal. The deposit office will retain one copy of Form D and return the other copy to the depositor after duly authenticating it; The payment will be made by way of crossed demand draft drawn in favor of the person to whom the deposits intends to make payment;

3.      A depositor intending to make withdrawal from his deposit in Account-B shall apply for transfer of the amount standing to his credit in Account B to Account A and may withdraw the requisite amount in the same manner as noted above;

Utilization of the amount of withdrawal:

1.      A depositor shall utilize the whole or any part of the amount withdrawn for the purposes of Sub section (1) of Sec. 54, 54B, 54D, 54F or 54G, in relation to which the deposit has been made;

2.      The amount withdrawn shall be utilized within sixty days from the date of such withdrawal and the amount or any part thereof which has not been so utilized shall be re deposited in Account-A immediately thereafter.

Nomination by the Depositor:

1.      A depositor may nominate in Form E one or more persons but not exceeding three to receive the amount standing to his credit in Account-A or Account-B, as the case may be, in the event of his death before the amount has become payable or having become payable, has not been paid;

2.      No nominations shall be made in respect of an account opened on behalf of a minor or a Hindu Undivided Family or a firm or a company or an association of persons or a body of individuals;

3.      A nominator made by a depositor may be varied by a fresh nomination in Form F by giving notice in writing to the deposit office;

4.      Every nomination and every cancellation or variation thereof shall be registered in the deposit office and shall be effective from the date of such registration, the particulars of which in the case of Deposit Account -A shall be entered in the pass book and in the case of a deposit in Account-B shall be entered in the deposit receipt issued by the deposit office;

5.      If the nominee is a minor, the depositor may appoint any person to receive the amount due under the account in the event of the death of the depositor during the minority of the nominee;

6.      Where the nomination is in favor of more than one person, the nominee first shall alone have the right to receive the amount standing to the credit in the account of the deceased depositor;

7.      Where the nominee pre deceased the depositor and the depositor has not cancelled the nomination or substituted the nomination, the nominee second named shall be entitled to receive the amount standing to the credit in the account of the deceased depositor and so on in respect of other successive nominees.

Closure of Account:

1.      If a depositor desires to close his account, an application shall be made with the approval of the Assessing Officer who has jurisdiction over the depositor to the deposit office in Form G along with the pass book or receipt as the case may be and the deposit office shall pay the amount of balance including interest accrued, to the credit in the account of the depositor by means of crediting such amount to any bank account of the depositor;

2.      In the case of death of the depositor, if the nominee wants to close the account he shall make an application to the deposit office in Form H along with the pass book or receipt as the case may be, with the approval of the Assessing Officer who has jurisdiction over the deceased depositor and the deposit office shall pay the amount of balance including interest accrued to the credit in the account of the nominee;

3.      If no nomination exists the legal heir of the deceased shall make an application in Form H along with the pass book or receipt as the case may be, with the prior approval of the Assessing Officer who has jurisdiction over the deceased depositor and the deposit office shall pay the amount.   If more than one legal heir is there, the legal heir claiming may do so by producing the letter of disclaimer or letter of authorization from other legal heirs in his favor;

4.      The payment made by the deposit office to the depositor or the nominee or the legal heir shall constitute a full discharge to the deposit office of its liability in respect of the deposit.

Charge or alienation:

                        The amount standing to the credit of the depositor in any account shall not be placed or offered by him as security for any loan or guarantee and shall not charged or alienated in any manner whatsoever.