What is Capital Gains Tax rules & regulations?

6 min read

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:
- Listed equity shares (if STT has been paid on the purchase and sale of these shares)
- units of equity-oriented mutual funds (if STT was paid on the sale of such units)

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.

CONTACT US 

AIAT INSTITUTE

Address: AIAT Institute, 15 Bhande Plot Umred Road Nagpur.

Phone: 9604121000

Website: www.aiatindia.com

Question & Answer

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%

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