Step-by-Step Guide to Capital Gains Account Scheme (CGAS): Rules, Types & Documentation
Under Income Tax Act and its Rules as applicable, when any sale of capital assets happens, results into the capital gain out of such sale transaction. The Long Term Capital Gain (LTCG) tax under the Income Tax Act on such transactions can be saved under the Section 54 series (Section 54, 54F, 54B and others) by reinvestment of the profits derived from such transactions. However, there is a time period limit under the above mentioned sections from 2 to 3 years to complete the reinvestment by purchasing or construction of further capital asset.
For the benefits of taxpayers, where there is a deadline of Income Tax Return (ITR) filing is due before fully utilization of these funds, one cannot simply keep the cash in their regular savings account. To legally claim tax exemption in that income tax return pertaining to when the transaction happened, taxpayer must deposit the unutilized money into a Capital Gains Account Scheme (CGAS) under the Income Tax Act.
Understanding of Capital Gains Account Scheme (CGAS)
The Capital Gains Account Scheme is introduced in 1988, and further notified under the Income Tax Act 2025, is a government notified scheme where the funds of unutilized capital gains arising from the sale proceeds of a long term capital asset can be deposited to claim the exemptions defined under the Income Tax Act. The funds deposited here are intends to be used further for the purchase or construction of eligible capital assets by the taxpayer within the legally defined time period. This is a different account from the traditional savings or say, fixed deposit account opened generally by the people for depositing their money. These accounts have certain procedural rules and specific process to operate which are different from regular savings and fixed deposit accounts. It is duly opened at authorized branches of authorized banks (such as SBI, PNB, ICICI, etc. )
There are two types of accounts under Capital Gains Account Scheme (CGAS):-
1. Type A – Savings Account: – It functions like a regular standard savings account but no cheque book and debit card is issued. The withdrawal of the funds is made through FORM C. Form C is mandatory for the first withdrawal while Form D is required for all subsequent withdrawals under the rules. This is generally ideal where the proceeds are to be used for construction of capital asset. The CGAS savings account also provides interest on the proceeds under the applicable rates.
2. Type B – Term Deposit: – It functions like a regular fixed deposit account. It also offers term deposit interest rates as applicable according to the time period and amount for the term deposits made in the CGAS account. However, No loan facility against this CGAS term deposit is available. This term deposit can neither be accepted as margin money nor as collateral under the rules applicable. This account is ideal where the taxpayer wants to buy a property in a lump sum payment at a later date within the time period as mentioned in the applicable Section of Income Tax Act. The Period of Term Deposit shall not exceeding 2 to 3 years from the date of transfer of original asset as per the applicable section of exemption claim and declare by the taxpayer.
The Deposit Deadline for Income Tax exemption Claim: – The taxpayer who wants to claim the exemption under applicable sections of Income Tax Act for the Long Term Capital Gain tax, must deposit the unutilized capital gains into the CGAS account before or on the actual date of filing their Income Tax Return (ITR), or before the statutory due date under Section 139(1) of Income Tax Act. (Generally, July 31st of the assessment year), whichever comes first.
Permitted Statutory Period: – There are strict statutory period for utilization of the funds under the applicable sections of Income Tax Act. The funds must be entirely spent on the specified capital asset replacement within a strict defined period starting from the original date of the asset transfer: Such as for purchasing a house (Sec 54 & 54F): utilized within 2 years, whereas for construction of a house (Sec 54 & 54F): utilized within 3 years and as specified for other eligible sections of Income Tax Act.
Taxability of Interest in the CGAS Account: The Interest earned on both the Type-A and Type B accounts is taxable and subject to TDS rules as applicable.
Documentation Required for Account Opening under CGAS
For Opening a Capital Gain Account Scheme account, the tax payer should approach an authorized branch of authorized banks under the scheme with the following documents and forms –
Form A: This is the primary application form for opening the bank account under CGAS. The taxpayer should unequivocally state the specific exemption section; the taxpayer is intends to claim. In case of jointly owned assets, each co-owner of asset sold must open a separate CGAS account corresponding to their share of capital gains out of such sale transaction.
PAN Card: The taxpayer must have a PAN Card mandatorily.
KYC Proofs: Aadhaar Card, Passport, or Voter ID alongside recent passport-sized photographs to open the CGAS account.
The primary Sale Deed: It is mandatory to submit the copy of the registered sale agreement of the original asset sold to substantiate the source of funds and amount of the capital gains along with other details.
Form E: Form E is form for the nomination, in case the customer wants to register a nomination in the CGAS account.
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