Selling property often brings the responsibility of paying capital gains tax on the profit earned. Fortunately, Indian tax laws provide exemptions under Sections 54, 54F, and 54B if the gains are reinvested in specified assets. However, many taxpayers find it challenging to reinvest their capital gains before filing their Income Tax Return (ITR). To address this issue, the government introduced the Capital Gains Account Scheme (CGAS), which allows taxpayers to temporarily deposit their capital gains while planning reinvestment, thereby preserving their eligibility for tax exemption.
What is the Capital Gains Account Scheme (CGAS)?
The Capital Gains Account Scheme (CGAS) is a government initiative that allows taxpayers to deposit capital gains from the sale of an asset into a designated account. This deposit serves as a temporary arrangement to secure exemption from capital gains tax when immediate reinvestment is not possible.
Who Can Benefit from CGAS
• Capital gains arising from the sale of a residential property (Section 54).
• Capital gains arising from the sale of any capital asset other than a residential house (Section 54F).
• Capital gains arising from the sale of agricultural land (Section 54B).
Types of Capital Gains Accounts Available
Under CGAS, taxpayers can open two types of accounts with designated public sector banks, including State Bank of India, Bank of Baroda, Canara Bank, and others: Under CGAS, taxpayers can open two types of accounts with designated public sector banks, including State Bank of India, Bank of Baroda, Canara Bank, and others
| Account Type | Features | Suitable For |
| Type A (Savings Account) | Operates like a regular savings account, offering withdrawal flexibility and interest earnings. | Taxpayers planning gradual reinvestment, such as constructing a house in stages. |
| Type B (Term Deposit Account) | A fixed deposit with a defined tenure and interest rate, available in cumulative or non-cumulative options. | Taxpayers who plan to make a one-time lump sum reinvestment. |
Step-by-Step process to Open a CGAS Account
1. Visit an Authorized Public Sector Bank
Designated banks such as State Bank of India, Bank of Baroda, Canara Bank, and others offer CGAS accounts. Check availability with your branch before visiting.
2. Fill Out Form A
Provide details such as the relevant exemption section (54, 54F, or 54B), the type of account (Type A or Type B), and the deposit amount.
3. Submit the Required Documents
- PAN card (mandatory)
- Proof of identity and address
- Copy of the sale deed of the property sold
- Capital gains computation
- KYC documents as per bank requirements
4. Deposit the Capital Gains Amount
Ensure the deposit is made before the Income Tax Return (ITR) filing due date, usually 31st July of the assessment year.
5. Collect Proof of Deposit
The bank issue a passbook for Type A (savings) accounts or a fixed deposit receipt for Type B (term deposit) accounts.
Withdrawals under the CGAS Account
• Withdrawals are permitted only for reinvestment purposes and must be backed by valid documentation.
• Form C is required for the first withdrawal, while Form D is used for subsequent withdrawals.
• The withdrawn amount must be utilized within 60 days; otherwise, it will be treated as taxable capital gains.
Tax Rules Compliance Essentials
• Interest earned on CGAS deposits is taxable under the Income Tax Act as income from other sources.
• If reinvestment is not completed within the prescribed timelines, the unutilized balance in CGAS will be added to your income and taxed at the prevailing Long-Term Capital Gains (LTCG) rate, currently 12.5%. For deposits made before 23rd July 2024, any unutilized amount beyond the exemption period will also be taxed at the applicable LTCG rate in the year it becomes taxable.
• Failure to deposit capital gains into CGAS before the ITR filing due date, or delayed deposits, will result in immediate loss of exemption, making the entire gain taxable in that year.
In conclusion, the Capital Gains Account Scheme stands out as a powerful tax planning tool that allows you to legally defer and save capital gains tax under the Income Tax Act. With the recent changes in LTCG rates, timely compliance and thoughtful reinvestment have become more critical than ever. By utilizing CGAS effectively, taxpayers can retain valuable exemption benefits and protect themselves from unnecessary tax outflows. Ultimately, understanding and leveraging CGAS can make the difference between losing exemptions and maximizing savings, ensuring your hard-earned profits work for you in the smartest way possible.