Capital Gains Accounts Scheme (CGAS), 1988

To encourage reinvestment of capital gains, the government provides exemptions under Sections 54 to 54GB if the gains are reinvested in specified assets within a set time frame. However, if a taxpayer is unable to reinvest the capital gains before filing their income tax return, they can deposit the unutilised amount in the Capital Gains Account Scheme (CGAS). This scheme allows taxpayers to park their capital gains until they are reinvested for the prescribed purpose, ensuring they remain eligible for the exemption.

What is Capital Gains Account Scheme?

The Capital Gains Account Scheme (CGAS) was introduced by the Central Government in 1988 to help taxpayers claim exemptions on long-term capital gains. Often, the time needed to reinvest capital gains exceeds the due date for filing income tax returns. In such cases, taxpayers can deposit the unutilised capital gains in a Capital Gains Account under CGAS to remain eligible for exemption.

Investing the gains in this account is treated the same as direct reinvestment for exemption purposes. However, short-term capital gains are not eligible for the capital gains account scheme (CGAS), as exemptions under Sections 54 to 54GB apply only to long-term capital gains.

Who Can Deposit in Capital Gains Account Scheme?

Any taxpayer who earns long-term capital gains and wants to claim exemption under Sections 54 to 54GB can deposit in the Capital Gains Account Scheme (CGAS). This includes Individuals, Hindu Undivided Families (HUFs), Companies, Trusts, and any other person eligible for capital gains exemption. The scheme is mainly used when the taxpayer is unable to reinvest the capital gains before the due date of filing their income tax return but intends to invest within the specified period to claim exemption.

Category of the taxpayer with capital gains who is eligible to invest in CGAS from Section 54 to 54F of the Income-tax Act, 1961 is provided below:

When Can One Deposit in Capital Gains Account Scheme?

• The taxpayer should invest the amount in the CGAS within the earlier dates of the following.
  • The due date of filing the return on income (For individuals and HUF - due date is 31st July of the next financial year).
  • The date of filing of return of the assessee.

Lets understand this time limit using an example:

1. Mr. A has opted for exemption under section 54F for FY 2024-25. He wants to purchase the property for Rs. 5 crores. He filed the return on income on 15th June 2025. Now to claim the exemption, he should have deposited the money to CGAS on or before 15th June.
2. If he missed the due date of 31st July 2025, and filed the belated returns on 5th August, he should have deposited the money to CGAS on or before 31st July 2025.

Where Should the Capital Gains Account be Opened?

Capital gains account can be opened in any of the authorized bank branches excluding rural branches of such authorized banks.

Procedure to open capital gains account and manner of deposit:

• Capital Gains account can be opened by making an application in duplicate in Form A.
• Documents such as PAN, proof of address, a photograph would be required.
• Deposit can be made by any mode such as cash, cheque, demand draft etc. In case of deposits via cheque or DD, date of deposit will be date on which cheque or DD is received in the deposit office subject to its realisation.
• The deposit can be made either in lump sum or instalments.
• Separate applications shall be made for availing exemption under different sections and separate capital gains accounts shall be opened.

What are the Types of Deposits Available Under Capital Gains Account Scheme?

Two types of deposits can be made under Capital Gains Account Scheme which is explained below:

Type A – Savings Deposit :

• Type A account is similar to regular savings bank account of any bank.
•  Interest at the rate similar to saving bank account interest will be credited periodically and also passbook is issued to the deposit holder. 
• Just like savings deposit, Type A account offers better liquidity and withdrawals can be made at any time.

Type B – Term Deposit:

• Type B account is similar to a fixed deposit account of a bank 
• Interest at the rate applicable to term deposit and has restrictions similar to a term deposit. 
• Maximum term allowed for a Type B account is 3 years. The depositor is required to choose the term based on his plan for specified investment such as 2 years for the purchase of new house property or 3 years for construction. 
• The depositor would receive deposit certificate containing all the details of deposit and is required to be submitted at the time of withdrawal. Further, auto-renewal of term deposit is not possible.
• Term deposit can either be cumulative or non-cumulative i.e., interest is either cumulated and re-invested along with principal or paid at regular intervals respectively.

The interest rate for both deposits is fixed by RBI from time to time. The depositor may choose the appropriate type of deposit keeping in mind his plans for specified investment, requirement of fund, rate of interest etc.

Withdrawal from Capital Gains Account Scheme

Withdrawals from the Capital Gains Account Scheme (CGAS) have specific rules:

Type A - Savings Account: Withdrawals are allowed without restrictions.

Type B - Fixed Deposit Account: Premature withdrawals are allowed only after transferring the amount to a Type A account, and such withdrawals may attract penalties.

Any amount withdrawn must be utilised for the specified investment within 60 days. If not utilised, the unspent amount should be immediately re-deposited into the Type A account.

For withdrawals, Form C is required for the first withdrawal, and Form D for subsequent withdrawals, along with details of how previous withdrawals were utilised. No cheque book or debit card is issued for CGAS accounts.

Points to Remember 

The following are the few points to be kept in mind while depositing funds in to CGAS.

Transfer of Account

• While change in nature of deposit is allowed such as savings to term deposit or vice versa, any transfer from Type B account to Type A account before maturity period is considered as a premature withdrawal. Further, transfer of account from one branch to another branch is allowed but not between different banks.
• Form B is required to be submitted for conversion of account.

Closure of Account

• Closure of both types of account requires approval from jurisdictional Income Tax Officer. Form G is required to be submitted for the closure of account along with jurisdictional income tax officer’s approval.
• Form H shall be submitted for closure of account by nominee/legal heir of deceased depositor in the absence of nominee.

Nomination

• Nomination to inherit the account upon depositor’s death can be made by submitting Form E and change of nominee can be made by submitting Form F.
• Nomination up to 3 persons is allowed and amount, if any to be received by nominees, will be in their order of nomination. No nomination is allowed for accounts opened on behalf of minor, HUF, AOP, BOI or firm. However, the nominee can be a minor and depositor can appoint a person to receive the amount in case of his death and during the minority of the nominee.

Loan Facility

• No loan can be obtained against Capital Gains Account Scheme. Deposit certificate can neither be offered as collateral security or guarantee nor any charge be created on the same.

Income Tax Implications

• While as per tax law it is necessary to attach proof of deposit to the income tax return for availing capital gain exemption, income tax return forms are attachment less forms and hence no document can be annexed to income tax forms. However, proof of deposit is required to be retained by taxpayer for submission to income tax department on demand in the future.
• Interest earned on both Type A and Type B deposits is liable to tax subject to tax law and tax will be deducted by deposit office and TDS certificate will be issued to the depositor.
• Any amount either under-utilized beyond 60 days of withdrawal or beyond specified time limit will be offered to tax.