Investing in a house property is one of the most popular investments, primarily because you get to own a home. Others may invest with the intention of profiting from the property when they sell it. It is important to note that a residential property is considered a capital asset for income tax purposes. As a result, any gain or loss incurred during the sale of a residential property may be subject to taxation under the 'Capital Gains' heading. Similarly, capital gains or losses can result from the sale of various types of capital assets. We will go over the chapter on 'Capital Gains' in detail here.
Tax Rates for Long-Term and Short-Term Capital Gains
|
Tax Type |
Condition |
Applicable Tax |
|
Long-term capital gains tax (LTCG) |
Sale of: |
10% over and above Rs 1 lakh |
|
Others |
20% |
|
|
Short-term capital gains tax (STCG) |
When Securities Transaction Tax (STT) does not apply |
Normal Slab Rate |
|
When STT is applicable |
15% |
A Capital Gain Account Scheme (CGAS) is a provision under the Income Tax Act of India, designed to help taxpayers avail tax benefits on capital gains. Here are some key rules and regulations related to CGAS in India:
Purpose: The CGAS allows taxpayers to deposit the capital gains arising from the sale of a capital asset (like property or shares) before the due date of filing their income tax return to claim exemption from capital gains tax.
Account Types: CGAS accounts are classified into two types:
CGAS Type I: This account is used when the taxpayer has not yet identified any asset to purchase but wishes to claim tax exemption on capital gains.
CGAS Type II: This account is used when the taxpayer has identified an asset to purchase but the purchase transaction is not completed before the due date of filing their income tax return.
Time Limit: The capital gains must be deposited in the CGAS account before the due date of filing the income tax return. This due date is usually July 31st of the assessment year for individuals.
Withdrawal: The amount deposited in the CGAS account must be utilized within the specified time frame. For Type I accounts, the amount must be utilized within 60 days from the date of deposit. For Type II accounts, it must be utilized within the time period specified by the taxpayer at the time of deposit but not exceeding the prescribed time limit.
Utilization: The amount deposited in the CGAS account can only be used for specified purposes, such as purchasing a new asset or constructing a new house. If the amount is not utilized within the specified time frame, it will be treated as capital gains of the previous year in which the time frame expires.
Interest: The CGAS accounts earn interest, and the interest earned is taxable. However, the interest income is generally lower compared to other savings accounts.
Joint Accounts: Joint accounts are not allowed under the CGAS scheme.
Bank Approval: Taxpayers need to open CGAS accounts in specified banks authorized by the government. These banks have different procedures and documentation requirements for opening CGAS accounts.
Documentation: Taxpayers need to submit Form A along with an application and identification documents to open a CGAS account.
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What is the purpose of the Capital Gain Account Scheme (CGAS)?
A. To help taxpayers save money for future purchases
B. To provide tax benefits on capital gains
C. To facilitate easy withdrawal of capital gains
D. To encourage investment in equity shares
Answer: B. To provide tax benefits on capital gains
Which type of account under CGAS is used when the taxpayer has not identified any asset to purchase?
A. CGAS Type I
B. CGAS Type II
C. CGAS Type III
D. CGAS Type IV
Answer: A. CGAS Type I
What is the time limit for depositing capital gains into a CGAS account?
A. Before the end of the financial year
B. Before the due date of filing the income tax return
C. within 30 days of the sale of the asset
D. within 90 days of the sale of the asset
Answer: B. Before the due date of filing the income tax return
How long does a taxpayer have to utilize the amount deposited in a Type I CGAS account?
A. within 30 days
B. within 90 days
C. within 6 months
D. within 60 days
Answer: D. Within 60 days
Which of the following is NOT a permissible utilization of funds from a CGAS account?
A. Purchasing a new asset
B. Constructing a new house
C. Paying off existing debts
D. Renovating an existing property
Answer: C. Paying off existing debts
What happens if the amount deposited in a CGAS account is not utilized within the specified time frame?
A. It is transferred to the taxpayer's savings account
B. It is treated as capital gains of the previous year
C. It is exempted from taxation
D. It is used to pay off outstanding taxes
Answer: B. It is treated as capital gains of the previous year
Which of the following is true regarding the interest earned on CGAS accounts?
A. The interest earned is tax-free
B. The interest earned is taxable
C. The interest earned is higher compared to other savings accounts
D. The interest earned is compounded annually
Answer: B. The interest earned is taxable
Are joint accounts allowed under the CGAS scheme?
A. Yes
B. No
Answer: B. No
Which form needs to be submitted along with an application and identification documents to open a CGAS account?
A. Form B
B. Form C
C. Form A
D. Form D
Answer: C. Form A
What is the tax rate for long-term capital gains tax (LTCG) on listed equity shares and equity-oriented mutual funds if STT has been paid on both purchase and sale?
A. 10%
B. 15%
C. 20%
D. 25%
Answer: A. 10%