Capital Gains Accounts Scheme, 1988

The profit that arises on the transfer of capital assets is referred to as Capital Gains and is chargeable to tax. Income Tax Act, 1961 also provides for various schemes for saving tax on such capital gains under Section 54, 54B, 54D, 54F, 54G, 54GA and 54GB. However, as per the provisions of these sections, the amount is required to be reinvested in specified investment types before the specified period. However, if the due date of filing income tax returns falls before the expiry of the specified period, the amount of capital gains is required to be invested temporarily in the Capital Gains Account Scheme which can be easily withdrawn at the time of investment in the specified instrument.

Background

The Capital Gains Account Scheme, 1988 was introduced in 1988 by the Central Government. This Scheme was introduced to avoid the misuse of the funds remaining under the control of the ssesses who have opted for the reinvestment of the amount of capital gain or net consideration.

As per the provisions of the Income Tax Act, Long-Term Capital Gains on transfer of capital asset arises when consideration received on transfer or sale of property is more than its Indexed cost of acquisition. In order to save such gains from being taxed, the capital gains needs to be invested towards the purchase of specified assets within the prescribed limit.

In other words, the amount of capital gains that is not appropriated by an  assessee towards the purchase of another property within one year from the date of transfer of the original property, or that is not utilized by him for the purchase or construction of a new property before the date of furnishing the return of income, should be deposited by him in a specified nationalized bank. The amount should be invested in a ‘Capital Gains Account Scheme’ under the Capital Gains Account Scheme, 1988.

Who can deposit in Capital Gains Account Scheme?

Category of assessee having capital gains who is eligible to invest in Capital Gains Accounts Scheme from Sections 54 to 54F of the Income-tax Act, 1961 “Act”, is provided below:

S. No.	Section	Capital Gains on	Category of person
(i)	54	Capital gains arising from transfer of residential house	Individual or HUF
(ii)	54B	Capital gains arising from transfer of urban agricultural land used for agricultural purpose	Individual or HUF
(iii)	54D	Capital gains on compulsory acquisition of land & building used for industry	Any category
(iv)	54F	Sale of any long-term capital asset not being residential property	Individual or HUF
(v)	54G	Transfer of asset (machinery, plant or building, land or right in land or building) in case of shifting of industrial undertaking from urban area	Any category
(vi)	54GA	Transfer of asset (machinery, plant or building, land or right in land or building) in case of shifting of industrial undertaking from urban area to Special Economic Zone	Any category
(vii)	54GB	Transfer of residential property	Any category

 

Who can accept deposit?

The scheme has provided that all the branches of Nationalised Banks except the rural branches are authorized to receive the deposit and maintain account under Capital Gains Accounts Scheme, 1988. In other words, all the branches of Nationalised Banks are allowed to open the account under this scheme. Other than these banks, no other bank is authorized to accept the deposit under Capital Gains Accounts Scheme,1988. Form A is to be submitted for opening of account under this scheme.

Banks Authorized to receive deposits under the Scheme

The Govt has notified 28 banks (now after merger 12 banks) which can open the Capital Gains Account on behalf of the Government. All branches of these 28 banks except Rural Branches are authorised to open the capital gains account.

Notification No. GSR 725(E), dated 22. 06. 1988

In pursuance of paragraph 2(e) of the Capital Gains Accounts Scheme, 1988, the Central Government hereby authorizes all the branches (except rural branches) of the banks mentioned below to receive deposits and maintain accounts, under the said scheme (Notification No. GSR 725(E), dated 22. 06. 1988):—

1. State Bank of India,

    (i)     State Bank of Bikaner & Jaipur, (merged with State Bank of India with effect from 01.04.2017)

    (ii)    State Bank of Hyderabad, (merged with State Bank of India with effect from 01.04.2017)

    (iii)   State Bank of Mysore, (merged with State Bank of India with effect from 01.04.2017)

    (iv)    State Bank of Patiala, (merged with State Bank of India with effect from 01.04.2017)

    (v)     State Bank of Travancore, (merged with State Bank of India with effect from 01.04.2017)

    (vi)   State Bank of Indore, (merged with State Bank of India with effect from 27.08.2010)

    (vii)  State Bank of Saurashtra, (merged with State Bank of India with effect from 13.08.2008)

2.   Central Bank of India,

3.   Bank of India,

4.   Punjab National Bank,

       (i)    United Bank of India, (merged with Punjab National Bank with effect from 01.04.2020),

       (ii)   Oriental Bank of Commerce, (merged with Punjab National Bank with effect from 01.04.2020),

       (iii)  New Bank of India, (merged with Punjab National Bank in 1993),

5.  Bank of Baroda,

      (i)   Dena Bank, (merged with Bank of Baroda with effect from 01.04.2019),

      (ii)  Vijaya Bank, (merged with Bank of Baroda in 2019),

6.   UCO Bank,

7.   Canara Bank,

      (i)  Syndicate Bank, (merged with Canara Bank with effect from 01.04.2020),

8.  Union Bank of India,

     (i)    Andhra Bank, (now merged with Union Bank of India with effect from 01.04.2020),

     (ii)   Corporation Bank, (merged with Union Bank of India with effect from 01.04.2020),

9.   Indian Bank,

      (i)  Allahabad Bank, (merged with Indian Bank with effect from 01.04.2020),

10.  Bank of Maharashtra,

11.  Indian Overseas Bank,

12.  Punjab & Sind Bank,

“RURAL BRANCH” means a branch which is situate and is functioning at a center the population whereof in accordance with the 2011 census is less than 10,000.

Notification No. GSR 859(E) [F. No. 225/19/2011-ITAT-II], ], Dated 30.11.2012

Capital Gains Account Scheme, 1988 - Notified deposit office to receive deposits and maintain accounts under the said scheme

In continuation to the earlier Notification No. G.S.R. 725(E), dated 22.06.1988 and in pursuance of clause (e) of paragraph 2 of the Capital Gains Account Scheme, 1988, the Central Government hereby authorises all the branches (except rural branches) of IDBI Bank Ltd., to receive deposits and maintain accounts under the said scheme.

Explanation.-For the purpose of this notification, a rural branch, in relation to the IDBI Bank Ltd., means a branch which is situate and is functioning at a centre, the population whereof, in accordance with the 2001 census is less than ten thousand.

Separate Account

The assessee has to open separate account for capital gains from transfer of different capital asset.

If the taxpayer is not able to buy or construct the said property by the last date of filing the income-tax return, in that event the amount has to be deposited in the Capital Gains Accounts Scheme,1988.

FOR EXAMPLE :

As mentioned above, if the property is sold on 14.05.2021, the taxpayers can buy or construct the property by 31.07.2022, which happens to be the last date of filing the income-tax return.

In a situation where such purchase or construction is not completed by 31.07.2022, in that event, the money must be deposited on or before 31.07.2022, that is, the last date of filing the income-tax return in terms of the Capital Gains Accounts Scheme,1988.

Types of account under Capital Gains Accounts Scheme

The scheme prescribes for two types of accounts for the benefit of the taxpayers, namely “A” and “B”.

(i) DEPOSIT ACCOUNT – TYPE A – SAVING ACCOUNT

This account is like a savings deposit account. Withdrawals may be made from the account from time to time, subject to other conditions of the scheme. This account is suitable for assessees who are planning to construct a house over a period of time.

(ii) DEPOSIT ACCOUNT – TYPE B – TERM DEPOSIT ACCOUNT

This account is like a Fixed Deposit Account that is payable after a fixed period of time with an option to the depositor to keep the deposit as cumulative or non-cumulative deposit. Withdrawals under this account can be made after the expiry of the period for which the deposit under this account has been made and accepted.

Deposits in these accounts may be made in one lump sum or in instalments at any time on or before the due date of furnishing the return of income under section 139(1).

Interest on deposit

Interest earned from both the accounts is taxable and TDS is also liable to be deducted from such account as per the provisions of the Income Tax Act. Interest is payable quarterly and rate of interest is as notified by Reserve Bank of India. In the case of Deposit Account B, interest can be non-cumulative or cumulative. In the case of non-cumulative, the interest can be withdrawn quarterly and in the case of cumulative deposit, interest will be paid at the time of maturity of the deposit.

Notification No. 08/2017, dated 13.09.2017

Subject : TDS on interest on deposits made under the Capital Gains Accounts Scheme, 1988 where the depositor has deceased - Regarding

1. It has been brought to the notice of CBDT that in cases of deceased depositor who has made deposits under the Capital Gains Accounts Scheme, 1988; the banks are deducting TDS on the interest earned on such deposits in the hands of the deceased depositor and issuing TDS certificates in the name of the deceased depositor, which is not in accordance with the law. Ideally in such type of situations, the TDS certificate on the interest income for and upto the period of death of the depositor is required to be issued on the PAN of the deceased depositor and for the period after death of the depositor is required to be issued on the PAN of the legal heir.

2. Under sub-rule (5) of Rule 31A of the Income-tax Rules, 1962, the Director General of Income-tax (Systems) is authorized to specify the procedures, formats and standards for the purposes of furnishing and verification of the statements or claim for refund in Form 26B and shall be responsible for the day-to-day administration in relation to furnishing and verification of the statements or claim for refund in Form 26B in the manner so specified.

3. In exercise of the powers delegated by the Central Board of Direct Taxes (Board) under sub-rule (5) of Rule 31A of the Income-tax Rules, 1962, the Principal Director General of Income-tax (Systems) hereby specifies that in case of deposits under the Capital Gains Accounts Scheme, 1988 where the depositor has deceased:

(i) TDS on the interest income accrued for and upto the period of death of the depositor is required to be deducted and reported against PAN of the depositor, and

(ii) TDS on the interest income accrued for the period after death of the depositor is required to be deducted and reported against PAN of the legal heir, unless a declaration is filed under sub-rule (2) of Rule 37BA of the Income-tax Rules, 1962 to that effect.

4. This issues with approval of the Principal Director General of Income tax (Systems).

Transfer from Deposit Account-B to Deposit Account-A – Approval of Assessing Officer is not mandatory

Conversion from one type of account to another type of account is allowed. For this purpose, Form-B is to be submitted. It was held that an approval of the Assessing Officer is not necessary where the assessee requested the bank to transfer the funds from Deposit Account-B to Deposit Account-A i.e. Saving Bank deposit as it is not treated as closure of the account. - [Sadula Janardhan (HUF) v. State Bank of Hyderabad 286 ITR 291 : 206 CTR 117 (AP)]

Nomination

A depositor is entitled to nominate (according to paragraph 11 of the scheme) not more than three persons to receive the amount to his credit in the account “A” or account “B” in the event of his death before the amount of deposit is due to be paid or having not been withdrawn. Form No. E is to be submitted for registering the nomination. The minor, HUF, Firm, Company, AOP, BOI are not entitled to nominate any nominee. This shows that only the individuals are having the privilege of having any nominee. The nomination once made may be varied by giving notice to the deposit office in Form “F”.

Withdrawals from Deposit Accounts

(i) WITHDRAWALS FROM DEPOSIT ACCOUNT-A

The depositor is required to apply in Form “C” of the scheme alongwith the Pass Book. Where there is a second or subsequent withdrawal from the account the depositor is required to furnish the details regarding the utilisation and extent of the earlier withdrawal in Form D in duplicate. In case the withdrawal exceeds 2,500/-, the depositor will get a crossed demand draft in favour of the person to whom the depositor intends to make the payment.

(ii) WITHDRAWALS FROM DEPOSIT ACCOUNT-B

To withdraw from Deposit Account-B, first the depositor is required to apply to the deposit office in Form B to transfer the amount to his Account-A and the amount is transferred to Deposit Account-A and then from this account the amount is to be withdrawn.

Utilisation

The depositor is required to utilise the amount of withdrawal for the purpose for which the deposit was made as required by sections 54(2), 54B(2), 54D(2), 54F(4) & 54G(2). The amount of withdrawal is required to be utilised within a period of 60 days from the date of withdrawal for the purposes specified in the relevant sections. In case it is not utilised in full or part within the specified period, it is required to be redeposited in the account immediately.

No creation of any charge

The amount deposited in the Capital Gains Account Scheme cannot be offered as a security for any loan or guarantee. It is not a transferable asset, neither it can be gifted nor it can be disposed of in any other manner (provided by paragraph 12 of the scheme).

Closure of Deposit Account

The Account has to be closed by submitting Form G and obtaining prior approval of the Assessing Officer who has the jurisdiction of the depositor. If the nominee or legal heir wants to close the account, he has to obtain permission from the Assessing Officer by applying in Form H.

Consequences if the deposit amount is not fully utilised

In case, the assessee deposits the amount in the Capital Gains Account Scheme, but does not utilise the amount deposited for the said purpose within the specified period, the amount not so utilised shall be charged under section 45 as Capital Gains of the year in which the specified period expired. It will be long-term capital gain of that financial year irrespective of whether the same amount was withdrawn by the assessee or not and irrespective of as to whether this non-withdrawal from capital gain account was for the fault of the assessee or of the Assessing Officer. Further, the withdrawal of the unutilized amount from the capital gain account is not pre-requisite for taxing the same in the relevant year.

In case an individual dies before the expiry of the two/three years

The unutilised deposit amount in the Capital Gains Accounts Scheme, 1988, in the case of an individual, who dies before the expiry of the two/three years stipulated period under sections 54, 54B, 54F and 54G, cannot be taxed in the hands of the deceased. This is also not taxable in the hands of the legal heirs also as the unutilised portion of the deposit does not partake the character of income in the hands of the legal heirs but is only a part of the estate developing upon them on the death of the depositor. - [Circular No. 743, dated 06.05.1996]

CBDT Circular : No. 743, dated 06.05.1996

Subject : Taxability of unutilised deposit under the Capital Gains Accounts Scheme, 1988 in the hands of the legal heirs of the assessee

1. Under sections 54, 54B, 54D, 54F and 54G of the Income-tax Act, 1961, capital gain is not chargeable to tax if the amount of capital gain or net consideration has been utilised for specified purposes by the assessee within the stipulated period laid down in the relevant section. These provisions also provide for the deposit in specified Banks, etc., of the amount of capital gain which is not utilised by the assessee for the acquisition of new assets before the date of furnishing the return of income under section 139(1). The amount of capital gain already utilised for the acquisition/construction of new asset together with amount deposited is deemed to be the cost of new asset and, consequently, this amount is not chargeable to capital gain in the year of transfer of asset. The provisions of sections 54, 54B, 54D, 54F and 54G further provide that if the amount deposited is not utilised wholly or partly for the prescribed purposes, within the period specified, the amount not so utilised shall be charged under section 45 as the income of the financial year in which the period of two/three years (as prescribed in the relevant section) from the date of transfer of the original asset expires.

2. A question has been raised regarding the taxability of the unutilised deposit amount in the case of an individual who dies before the expiry of the stipulated period.

3. The matter has been considered by the Board and it is clarified that in such cases the said amount cannot be taxed in the hands of the deceased. This amount is not taxable in the hands of legal heirs also as the unutilised portion of the deposit does not partake the character of income in their hands but is only a part of the estate devolving upon them.

PROVISIONS ILLUSTRATED :

Mr. ‘X’ sold his residential house property for Rs. 2,50,00,000/- on 25.05.2020. Brokerage paid on sale is Rs. 5,00,000/-. The residential property was acquired for Rs. 50,00,000/- on 06.12.2010. He decided to avail exemption under section 54.

As per the scheme of exemption, Mr. ‘X’ is supposed to invest his Capital Gains for purchase of Residential House Property within one year before the date of transfer or within two years after the date of transfer or construct residential house property within 3 years after the date of transfer. However, due to some reasons, Mr. ‘X’ could invest only 50% of his capital gains in purchasing or constructing a residential house property till the next 9 months.

How Mr. ‘X’ can save tax on his Long-Term Capital Gains for assessment year 2021-22.

SOLUTION :

S. No.	Particulars	Amount (in Rs.  )
(i)	Gross Sale Consideration	2,50,00,000
(ii)	Less : Expenses on Transfer	5,00,000
(iii)	Net Sale Consideration [(i) – (ii)]	2,45,00,000
(iv)	Less: Indexed Cost of Acquisition (COA) =  Cost of acquisition x CII in the year of Transfer     CII in the year of Acquisition = 50,00,000 x 301        167	90,11,976
(v)	Therefore, Long-Term Capital Gains	1,54,88,024
(vi)	Less : Exemption under section 54	90,11,976
(vii)	Balance amount to be deposited in Capital Gains Accounts Scheme, 1988 before due date of filing return for assessment year 2021-22.	64,76,048
Mr. ‘X’ should utilise the amount lying in Capital Gains Accounts before 31.07.2021 or else the amount will be liable to tax in assessment year 2022-23.

                       

Where only a part of amount deposited in Capital Gains Account Scheme was utilized for construction or purchase of a new asset within specified time of three years, income tax was chargeable on remaining unutilized amount in previous year in which period of three years expired

Exemption of, in case of investment in residential house (Capital Gain Account Scheme) - Assessee sold an immovable property and deposited capital gains of Rs. 1.15 crore in Capital Gain Account Scheme, 1988 and claimed exemption under section 54F. Assessee purchased a premises for price of Rs. 21.32 lakhs before expiry of three years from date of transfer of original capital assets. Since only a part of amount deposited in Capital Gains Account Scheme was utilized for construction or purchase of a new asset within specified time of three years, income tax was chargeable on remaining unutilized amount in previous year in which period of three years expired. [In favour of revenue] (Related Assessment year : 2016-17) – [Professor P. N. Shetty v. ITO (2020) 268 Taxman 226 (2019) 112 taxmann.com 218 (Karn.)]

Where assessee deposited unutilized sale consideration in capital gain accounts scheme before filing of return under section 139(4), same was eligible for deduction under section 54F

Assessee earned long term capital gain from sale of plots on 10.02.2011. It opened FDR with bank on 20.01.2011. Later on, assessee came to know that as per provisions of section 54F, FDR was required to be made under capital gain account scheme (CGAS), therefore, in order to rectify procedural mistake, assessee on 03.12.2011 en-cashed FDR with bank and deposited same on very same day into capital gains scheme FDR without utilizing same for any other purpose. It was noted that assessee had filed return of income on 14.12.2011 within time limit prescribed under section 139(4) wherein claim under section 54F was made. Since amount was deposited in CGAS before filing of return under section 139(4), same was eligible for deduction under section 54F. [In favour of assessee] (Related Assessment year : 2011-12) - [Renu Jain v. ITO (2020) 121 taxmann.com 222 (ITAT Jaipur)]

Deduction of long-term capital gain under section 54 is allowed if it is invested in purchase of new house property before actual date of filing of return under section 139(1); otherwise unutilised capital gain is to be deposited under Capital Gain Account Scheme; no deduction is allowable where capital gain is utilised after actual date under section 139(1), no matter it is invested within extended time of filing return under section 139(4)/(5)

Profit on sale of property used for residence (Condition precedent) - Deduction of long-term capital gain under section 54 is allowed if assessee invests/utilises capital gain in purchasing new house property before actual date of filing of return of income under section 139(1); where unutilised capital gain was not deposited in Capital Gain Account Scheme before this date, no deduction would be allowed even if it is invested within extended time permitted for filing return under section 139(4) and 139(5). [In favour of revenue] (Related Assessment year :2014-15) – [Rajan Gumba Telang v. PCIT (2020) 180 ITD 184 : (2019) 112 taxmann.com 94 (ITAT Mumbai)]

Where assessee had opened bank account specifically for purpose of depositing compensation received on acquisition of his land, and amount deposited in said account had been utilized only for purchase of plot of land and partial construction thereon, assessee's claim for deduction under section 54F could not have been denied on ground that compensation was not deposited in Capital Gains Scheme Account

Exemption of, in case of investment in residential house (Capital gains account scheme) - Assessee received certain compensation on compulsory acquisition of his land by RIICO - In return of income, assessee offered said receipts to tax as long term capital gains and claimed exemption under section 54F on account of sale consideration deposited in Capital Gain Account Scheme 1988. Assessing Officer on verification of assessee's aforesaid bank account found that said account was not a Capital Gain Scheme Account and, therefore, denied exemption under section 54F and assessment order was passed bringing long term capital gains to tax. However, it was found that entire compensation stood deposited in savings bank account maintained with HDFC bank which was opened specifically for purpose of depositing compensation received by assessee [substantial compliance of section 54F(4)] and withdrawals had been limited to extent of purchase of plot of land and partial construction. Therefore, assessee’s claim for deduction under section 54F could not have been denied on ground that amount of compensation received had not been deposited in Capital Gains Account. Further, fact that said bank account of assessee was attached by Department, there was no way assessee could have met deadline for constructing new house, being three years from date of transfer of original asset. Thus, in view of above facts assessee would be entitled to exemption under section 54F. [In favour of assessee] (Related Assessment year :2009-10) - [Goverdhan Singh Shekhawat v. ITO (2019) 102 taxmann.com 50 (ITAT Jaipur)]

Capital gains relief under section 54B and section 54F would be allowable to assessee who deposited unutilized sale consideration in capital gain account scheme within due date of filing belated tax return under section 139(4)

For claiming exemption under sections 54B and 54F it is not necessary that investment should have been made within original due date of filing return under section 139(1) as section 139 cannot be meant only section 139(1), but it means all sub-sections of section 139. Thus, where assessee, an individual, deposited unutilized sale consideration in capital gain account scheme within due date of filing belated tax return under section 139(4), capital gains relief under section 54B and section 54F would be allowable. [In favour of assessee] – [PCIT v. Shankar Lal Saini (2018) 89 taxmann.com 235 (Raj.)]

Where assessee had invested larger amount than sale consideration of property in purchase of residential plot before due date prescribed under section 139(1) and construction of house thereon was also completed within prescribed time-limit of three years, exemption under section 54F could not be denied on ground that sale consideration was not deposited in scheme notified by Government

The assessee sold a property and invested an amount larger than sale consideration in purchase of a residential plot before due date of filing return under section 139(1). The assessee thereafter constructed house on said plot within prescribed limit of three years. The Assessing Officer denied exemption under section 54F to assessee on ground that the sale consideration was not deposited in the scheme notified by the Government. Held that on facts the assessee was fully entitled to the deduction as claimed under section 54F. [In favour of assessee] (Related Assessment year : 2010-11) – [Smt. Nirmala Yadav v. ITO (2017) 88 taxmann.com 870 (ITAT Jodhpur)]

Where deposit of unutilised capital gain was made by assessee within time limit provided for filing of return under section 139(5), assessee would be entitled to exemption under section 54G

Assessee-company sold its land and building in order to shift to different area. Assessee filed his revised return of income on 28.10.2010. He deposited his unutilised capital gain in capital gain scheme account on 30.03.2010 and claimed exemption under section 54G(2). Assessing Officer denied claim of assessee on ground that assessee had failed to make deposit of unutilised gain before due date of filling of return under section 139(1). According to assessee, due date of filing return of income in its case was not as specified in section 139(1) but as specified in section 139(5) i.e. 31.03.2011. Section 139(5) is part of section 139(1) and if deposit of unutilised capital gain was made within time limit provided for filing return under section 139(5), assessee was entitled to exemption under section 54G. [In favour of assessee] (Related Assessment year : 2009-10) – [DCIT v. Kilburn Engineering Ltd. (2017) 79 taxmann.com 250 (ITAT Kolkata)]

Where assessee had already started construction of a residential house within one year prior to date of sale of land and utilised entire sale consideration within three years from date of transfer of land, he could not be denied exemption under section 54F

Assessee sold lands - On date of sale he was already owning a vacant site on which he had already started construction by availing loan from bank. In terms of section 54F(1), all investment made in construction of residential house on said vacant site within a period of one year prior to sale of original asset would be eligible for exemption under section 54F(1). Further, assessee having invested entire sale consideration in construction of a residential house within three years from date of transfer, he could not be denied exemption under section 54F on ground that he did not deposit said amount in capital gains account scheme before due date prescribed under section 139(1). [In favour of assessee] – [CIT, Bangalore v. K Ramachandra Rao (2015) 230 Taxman 334 : 56 taxmann.com 163 (Karn.)]

Where though assessee placed compensation on acquisition of agricultural land in account under Capital Gains Scheme but failed to purchase another agricultural land within two years, assessee would be liable to pay capital gains tax

Transfer of land used for agricultural purpose [Purchase] - Assessee received enhanced compensation and interest for acquisition of his agricultural land - Since assessee placed such amount in account in accordance to CapitalGainsScheme, 1988, taxability of same was postponed for period of two years. Assessee did not purchase agricultural land within period prescribed by section 54B. Assessee would be liable to pay capital gain tax. [In favour of revenue] (Related Assessment year : 1993-94) – [Naurata Ram Karta v. CIT, Ludhiana (2014) 42 taxmann.com 308 (P&H)]

Where assessee paid substantial amount of sale consideration of a residential house for purchase of another residential property within extended period of limitation of filing of return under section 139, his claim for deduction under section 54F was to be allowed

Assessee sold his agricultural land and residential house vide sale deed dated 20-6-2006 - On same date, assessee claimed to have written a letter to Bank to deposit said amount in capital gain account. However, amount earned by assessee was deposited in a ‘Flexi General Account’, which was saving as well as fixed deposit account. Subsequently, assessee purchased a residential house from sale proceed so received. Revenue authorities rejected assessee’s claim for deduction under section 54F on ground that assessee failed to deposit sale proceeds of capital asset in capital gain account in terms of section 54F(4) within period of one year of sale or acquire a new asset within one year i.e., in terms of section 139(1). Since assessee had proved payment of substantial amount of sale consideration for purchase of a residential property on or before 31.03.2008, that is within extended period of limitation of filing of return, he was not liable to pay any capital gain tax. [In favour of assessee] (Related Assessment year : 2007-08) – [CIT, Rohtak v. Jagtar Singh Chawla (2013) 33 taxmann.com 38 (P&H)]

Deposit of amount in capital gains account scheme by date mentioned under section 139(4) – Eligible for exemption

If a person has not furnished the return of the previous year within time allowed under sub-section (1) i.e. before 31st July of the Assessment year, the assessee can file the return before expiry of one year from the end of the relevant previous year. The assessee has deposited the amount before filing of return under section 139(4), therefore the assessee is entitled to benefit of exemption under section 54. (Related Assessment Year: 2006-07) - [CIT v. Jagriti Agrawal (Ms) (2011) 339 ITR 610 : 203 Taxman 203 : 64 DTR 333 (P&H)]

Time limit to deposit the amount

The amount should be deposited before the date of furnishing the return of income under section 139 of the Income Tax Act, 1961. Even if Income Tax Returns are filed after the due date u/s 139(1), then too the benefit of Capital Gains Account scheme can be availed, provided the unutilized amount of Capital Gains is deposited in Capital Gains Account before due date of filing returns under section 139(1). - [CIT v. Rajesh K. Jalan (2006) 206 CTR 361 (Gau)]