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The capital gain account scheme lets you deposit long term capital gains in a special bank account before your income tax return is due, so you can still claim the exemption for a new house or other allowed asset that you buy or build later. Without it, any gain not reinvested by the return due date loses the exemption for that year.
A common case: a family sells an old flat, plans to build a new home, but the construction will take two years. The gain is placed in this account, withdrawn in parts as the work progresses, and the tax relief stays intact. This page covers who uses it, how the two account types differ, the forms, and the changes notified recently.
At a glance
Framed by
Union government under the income tax lawWho uses it
Individuals, HUFs and others claiming a reinvestment exemption on capital gainsWhere
Authorised branches of banks named as deposit officesDeadline
Deposit before the due date of the income tax returnAccount types
Account A (savings) and Account B (term deposit)Interest
Bank's own savings or term rate, fully taxableClosure
Needs approval of the Assessing Officer
When you need the capital gain account scheme
The income tax law gives relief on long term gains if the money goes into a new residential house, agricultural land, or certain other assets within a set time. Purchase of a house is usually allowed up to two years after the sale, and construction up to three years. But the return for the year of sale is due much sooner.
This scheme fills that gap. Whatever part of the gain you have not yet spent by the return due date is deposited here. The deposit is treated as if it were already used for the new asset, and you claim the exemption in your return. Under the old Act these exemptions sat in sections 54, 54B, 54D, 54F, 54G and 54GA. The new Income-tax Act, which has replaced the old one, keeps the same reliefs under new section numbers, so ask your tax preparer which numbers apply to your sale.
Account A and Account B
| Feature | Account A | Account B |
|---|---|---|
| Type | Savings deposit | Term deposit, cumulative or with interest paid out |
| Suits | Construction paid in stages | A purchase planned for a later date |
| Withdrawals | Any time, with the right form | Money is first moved to Account A, then withdrawn |
| Premature exit | Not relevant | Allowed, with a reduced rate as per bank rules |
You can hold both. Many people keep a part in Account B to earn the term rate and move money to Account A as bills come in.
How to open the account
- Find a bank branch that acts as a deposit office for the scheme. Rural branches usually do not.
- Fill Form A with your details, the type of account and the amount.
- Attach PAN, identity and address proof and photographs.
- Deposit the amount by cheque, draft or electronic transfer before the return due date.
- Collect the passbook or deposit receipt and quote its details in your return.
- Add a nominee on the nomination form.
The bank sets interest as it does for its own savings and term deposits. What the account earns is yours to declare, and it is taxed at your slab. Read how deposit interest is taxed for TDS rules.
Withdrawing money for the new house
The first withdrawal is made on Form C. Every later withdrawal uses Form D, where you also show how the previous withdrawal was spent. Money taken out must be used for the purpose within 60 days. Anything left unused after 60 days must go straight back into Account A.
Example: a gain of 40 lakh is deposited. The builder raises a demand of 10 lakh. You withdraw 10 lakh on Form C and pay within the week. For the next stage of 15 lakh you file Form D with the receipt for the first payment.
Closing the account and what if the money is not used
Closure is made on Form G and needs written approval from your Assessing Officer. If the depositor dies, the nominee or legal heir applies on Form H, also with that approval.
If some of the deposit is not used for the new asset within the allowed period, that amount is taxed as long term capital gain in the year in which three years from the original sale end. So keep receipts for every rupee spent and file Form D honestly. Tax experts differ on finer points of timing, so take advice from a chartered accountant on your own case.
Capital gains account scheme changes notified recently
The Union government amended the scheme recently to bring it up to date. As per the notification:
- Deposits can be made by electronic modes such as NEFT, RTGS and IMPS, and the forms now carry fields for those reference numbers.
- The deposit date is the date the deposit office receives the money, once the payment clears.
- Passbooks and statements may be issued in electronic form.
- More banks can act as deposit offices, as listed in a separate notification.
- Gains claimed under section 54GA, for shifting an industrial unit to a special economic zone, were brought inside the scheme.
- An online route to close accounts, using a digital signature or electronic verification code, is set to begin from a later date given in the notification.
Before you go, confirm the current forms with the deposit office branch or on the tax e-filing site.
Mistakes that cost the exemption
- Depositing after the return due date. The deadline is the original due date, not the belated return date.
- Opening a normal fixed deposit instead of this special account. A plain FD does not protect the exemption.
- Not using the withdrawn money within 60 days and not putting it back.
- Closing the account without the officer's approval.
A normal bank deposit is explained on the FD and RD basics page. If you want to hold government bonds instead after the house is done, see RBI Retail Direct.
Frequently asked questions
Is the capital gain account scheme only for property sales?
It is used most often after selling a house or land, but it covers any long term gain where the law allows a reinvestment exemption. The asset you reinvest in must be one the law permits.
Can I deposit after filing my return?
No. The deposit must be made before the due date for filing the return for the year of sale, and the proof must be quoted when you file.
Is interest on this account tax free?
No. Interest earned is taxed at your normal slab rate, and the bank may deduct TDS. Only the capital gain itself is exempt if you use it as the law requires.
Which banks offer the capital gains account scheme?
Only branches named as deposit offices. Many public sector bank branches in towns and cities offer it, and the recent amendment added more banks. Ask your bank whether the branch is authorised.
What happens if the house is never built?
The unused amount becomes a taxable long term capital gain in the year the three year period from the sale ends. You then close the account with the Assessing Officer's approval.
Official sources
- Income Tax Department e-filing portalwww.incometax.gov.in
- Department of Economic Affairsdea.gov.in
Rules, amounts and portals can change. Check the official source before you apply or deposit.