Capital Gain Account Scheme

The Income Tax Act prescribes that the taxpayer should deposit the amount of capital gains in the Capital Gain Account Scheme on or before the due date of filing return to enjoy exemption from capital gain tax. This amount can be easily withdrawn.

TYPES OF CAPITAL GAINS ACCOUNT –

There are 2 types of capital gains account:

Type A: Savings account – This is like a normal savings account and the amount deposited in this gets interest like a normal savings account.

Type B: Term Deposit account – This is like a fixed deposit wherein the amount is deposited for a fixed period of time. The interest rate on this account is equivalent to the interest paid on fixed deposits by the bank.

Type B accounts are further of 2 types :

Cumulative – Under this, the interest is re-invested and the total amount is paid on the completion of the time period.

Non-cumulative – Under this, the interest is paid at regular intervals and is not re-invested.

The type A account is advised when the amount is to be used in phased manner. Eg Construction of house because the amount will be withdrawn in stages.

Whereas type B account is advised when the amount is to be used for purchasing of a flat, because then amount will be used in lump sum.

INTEREST ON CAPITAL GAINS ACCOUNT –

Interest on the amount deposited will be paid half yearly at such rates as specified by the RBI from time to time.

In case of cumulative accounts, interest will be re-invested while in non-cumulative accounts, interest will become due and payable at intervals.

TDS ON INTEREST -

This interest is not tax-free and TDS is liable to be deducted on this as per the relevant provisions of Income Tax Act.

Since Type A accounts are like a normal savings account and earn interest like a normal saving account, TDS will not be deducted on such interest.

But Type B are like a fixed deposit, interest on this amount will be subjected to TDS @ 10%.