Whether Utilised Amount In Capital Gains Account Scheme Received By Legal Heir Taxable?

Income Tax Act provides many scheme of saving tax on long term capital gains. These , exemption provisions are contained in section 54,54B,54D , 54F etc. The conditions for claiming exemption requires that the gains have to be spend in a specified manner. For example , in case of claim of exemption u/s 54 of tax from LTCG on sale of residential house , one has to purchase the house within two years or construct the house within three years. So, to facilitate such long period of expense , there is a facility of depositing the gains in special account in SBI or associated bank and the tax payer can withdraw the money from that account to purchase of construct the house .

The I T Act provides , that in case the amount depsoited in Capitakl Gains Account Scheme and remains unspend, such unspent amoun shall be taxed in the year in which three years elase. The question is if the assessee , suddenly dies and the amount remains unspent which is claimed by the legal heir or widow of him, whether such unspendt amoun is taxable in the hand of receipient i.e legal heir?
Fortunately , the unspent amount is not taxable by virtue a CBDT circular No 743 dated 6.5.1996 which is very clear in this regard. Read it below

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 utilized wholly or partly for the prescribed purposes, within the period specified, the amount not so utilized 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 underutilized 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 un utilised 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.

So, the legal heir should apply before the Bank Manager after applying to A.O for approval . The prescribed form for closing the Capital Gains Account is Form H.
Did you read these:
How To Use Capital Gains Account Scheme To Save Tax?