What is the Capital Gains Account Scheme (CGAS)?

Aakash Sharma — Mon, 27 Sep 2021 05:35:11 +0000

The Indian government instituted the Capital Gains Account Scheme (CGAS) to encourage investors to reinvest their capital gains made in the market in different avenues. The scheme gives tax benefits to investors who invest their capital gains into specified assets (accounts) provided under the CGAS. The plan is listed under sections 54 to 54GB of the Income Tax Act 1962, which has provisions for exemption from capital gains.

In some cases, taxpayers are unable to reinvest the capital gains in modes specified in the law before the filing of return of income or before the end date of profits investment. Thus, the government introduced the Capital Gains Account Scheme to enable taxpayers to park their funds till they are spent on the prescribed plan.

What is Capital Gains Tax (CGT)?

Earnings generated from the sale of capital assets are termed capital gains. Gains from the trade of capital assets are taxed in the income tax proceedings. Capital gains arise for a transaction where you trade the asset for a higher price than its buy price.

Types of Capital Gains Tax

Capital assets are generally divided into short-term and long-term capital assets.

- Long-term Capital Asset

Long-term capital assets are the assets that are held for more than 12 months. In India, the tax for long-term capital gains in stock markets is set at 10% of the profit volume.

- Short-term Capital Asset

Short-term capital assets are the assets that are held for 12 months or less. These gains are taxed at 15% in stock market gains.

Capital Gains Account Scheme

The time available for the beneficiary to reinvest and avail of the exemption is longer than the due date to register the return of assets. In this case, the taxpayer can deduct unused capital gains in the “Capital Gain Account” under the Capital Gains Account Scheme. Capital gains invested in the capital gains account are exempt from taxation and are treated as reinvested gains.

Availing Capital Gains Account Scheme benefits

Taxpayers who are unable to reinvest their investment income in a particular tax-exempted avenue before filing tax returns are eligible for CGAS. Before reporting it in income tax filings, taxpayers must bring in the investment income that was not used for re-investment purposes. This must be done before the tax filing deadline. Capital gains account can be opened for additional capital benefits at any branch of a public bank, except in rural areas where banks are not empowered with such features.

Procedure to open capital gains account

You can open a capital gains account with your bank and apply via Form A. Information such as PAN details, proof of address, and photograph is required for the opening process. You can make deposits in many ways, such as cash, check, demand draft, etc. You can make the deposit either in lump sum or instalments. Separate applications shall be made for exemption under different sections, and you must open individual capital gains accounts.

Types of deposits

You can make two types of deposits under the capital gains account scheme.

- Type A – Savings deposit

Type A account is like a regular savings bank account of any bank where interest at a rate similar to saving bank account interest is credited periodically. The bank also issues a passbook to the deposit holder. Like the savings deposit, a Type A account offers better liquidity, and you can withdraw at any time.

- Type B – Term deposit

Type B account is similar to a bank’s fixed deposit account that offers interest at the rate applicable to a term deposit. It has restrictions identical to a term deposit. The maximum term allowed for a Type B account is three years. The depositor is required to choose the time based on his plan for specified investment, such as two years for the purchase of new house property or three years for construction. Like fixed deposits, depositors receive a deposit certificate containing all the deposit details. It has to be tendered at the time of withdrawal. Moreover, auto-renewal of term deposit is not permissible as a standard fixed deposit.

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The term deposit can be calculated on a cumulative or non-cumulative basis; interest is either consolidated and reinvested with the principal or paid out periodically.

Withdrawal from the scheme

You shall submit form C for withdrawal from an account for the first time and Form D for further withdrawal transactions. These are subject to furnishing the details of the manner of utilisation of money withdrawn previously. Hence, no debit card or chequebook is issued to the depositor.

There are no restrictions on using the Type-A account for withdrawing money. While the right to withdraw money from a Type-B account is granted, it is only allowed if the money is transferred to a Type-A account and then withdrawn. Failing to adhere to this rule levies penalty on the account holder. The individual amount withdrawn is expected to be utilised for designated purchase within 60 days of withdrawal, and any unutilised amount may be re-deposited to the Type A account immediately.

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Young Founders of India: Paying Heed to the Industry

Aakash Sharma — Fri, 12 Feb 2021 06:35:03 +0000

Success is aspired by many, especially by those who start out new. But emerging entrepreneurs need to be aware that there are always tens of thousands of people smarter and more challenging than them, more capable of solving the same problems they are trying to solve. The greatest thing a new or aspiring entrepreneur can do is synchronize their strategy with market trend and timelines- to make sure that they are in the right place at the right time.

Research Industry Trends

Focusing on the industry and the long-term cycle in which the significant changes can occur is the fundamental step towards setting up anything that can be potentially successful. We often spend a lot of time figuring out what the problem is that we want to solve. In focusing on the industry’s long-term trends, you can pinpoint the painful joints.

As per the industry trends, you can fathom your accuracy and agility of doing business if one can identify the right questions and problems at the right time, the chances of their business being successful increase rapidly.

India – a Growing Opportunity and a Vast Industry

The financial services industry in India has grown significantly in recent years. The key reason behind this is the unsold customers’ open accounts and savvy consumers seeking to invest beyond traditional gold and real estate assets.

Shailesh Lakhani, CEO of venture capital firm Sequoia India, said the growth in financial services industry is due to a combination of factors – such as improvements in economic infrastructure and new digital distribution channels – resulting in a “real wave” of innovation.

In 2020, the pandemic exacerbated these trends, leading to a global rise in retail investment. Therefore, financial technology will be one of India’s most prolific investment sectors in the years to come. Note that half of the company’s assets in 2019 were related to financial technology.

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The greatest thing a new or aspiring entrepreneur can do is synchronize their strategy with market trend and timelines- to make sure that they are in the right place at the right time.

Inspiring Innovators Turning Industry Experts

Such trends will lead to more investors and innovators in the market. In the US, for example, 90% of people have direct or indirect access to financial markets. India is doing what America is doing, maybe ten or fifteen years behind schedule, so it would be fair to bet that we are going in the same direction as the US did before.

Not a quick money-making strategy, but as a long-term game.

This is a long-term opportunity. At times, entrepreneurs will see considerable growth, while at other times the path may seem narrow. It is worth paying attention to the long-term effort and to create a viable business. The market will always be competitive and customer-driven and what they want is usually the best way to earn in the long term.

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