Capital Gains Accounts Scheme (CGAS), 1988

The Capital Gains Account Scheme (CGAS) allows taxpayers to claim exemptions on long-term capital gains even if they are unable to reinvest the gains before the income tax return (ITR) due date. By depositing the unutilised capital gains into a designated CGAS account with an authorised bank, taxpayers can preserve their eligibility for exemptions under Sections 54 to 54GB while completing the investment within the prescribed time limit.

Capital Gains Accounts Scheme - An Overview

Key Highlight	Details
Purpose	Helps claim capital gains exemption when reinvestment is pending before the ITR due date.
Applicable Gains	Available only for long-term capital gains eligible under Sections 54 to 54GB.
Eligible Exemptions	Sections 54, 54B, 54D, 54F, 54G, 54GA and 54GB
Types of Accounts	Choose between Type A (Savings Deposit) and Type B (Term Deposit).
Deposit Deadline	Deposit the unutilised capital gains on or before the applicable ITR filing due date.
Latest Update	CGAS deposits can now be opened with authorised public sector, private sector, and small finance banks using digital payment modes.

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.

Objectives of Capital Gains Accounts Scheme

1. Flexibility for Staggered Investments in Construction

Capital Gains Account Scheme is helpful especially for construction of property, as the investment cannot be made in one go, and takes longer duration. Since the investment in whole cannot be made within the due date, the scheme provides a cushion, ensuring compliance as well as convenience.

2. Relief from Immediate Investment Pressure

This scheme allows the home-buyers have a buffer time to evaluate and to decide on their investment choices. No need invest in the property before the prescribed due dates, relieving them of the pressure of making rushed decisions.

3. Practical Necessity of the Capital Gains Account Scheme

Practically speaking, the capital gains exemption provisions cannot be fully realized in its true spirit, without Capital Gains Account Scheme.

Capital Gains Account Scheme Eligibility

1. Nature of Capital Gains Covered

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).

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:

2. Eligible Categories of Taxpayers

Taxpayers of any legal status, including Individuals, Hindu Undivided Families (HUFs), Companies, Trusts, and any other person eligible for capital gains exemption. 

3. Purpose of the Capital Gains Account Scheme (CGAS)

The scheme is used when the taxpayer is unable to reinvest the capital gains before the ITR due date but intends to invest within the specified period.

4. Eligibility for Non-Resident Taxpayers

Even non-residents are eligible to park their reinvestment funds in the Capital Gains Account Scheme.

5. Time Limit for deposit and consequences of delay

• The taxpayer should invest the amount in the CGAS within the earlier dates of the following.
  1. The due date of filing the return on income (For individuals and HUF - due date is 31st July of the next financial year).
  2. The date of filing of return of the assessee.
• If the due date of filing Income Tax Return is crossed, you are not eligible to park your reinvestment proceeds in the Capital Gains Account Scheme. 
• It is essential and imperative to ensure timely deposit of funds in CAGS to claim the respective capital gain exemptions.

Example

1. Mr. A has opted for exemption under section 54F for FY 2025-26. He wants to purchase the property for Rs. 5 crores. He filed the return on income on 15th June 2026. 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 2026, and filed the belated returns on 5th August, he should have deposited the money to CGAS on or before 31st July 2026.

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:

1. 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.

2. 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 accumulated and re-invested along with principal or paid at regular intervals respectively.

3. Type A v/s Type B - A Comparison

The following table shows a comparative analysis of Type-A and Type-B account:

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.

Documents required to open Capital Gains Account Scheme

• Capital Gains account can be opened by making an application in duplicate in Form A.
• Documents such as 
  1. PAN, 
  2. Proof of address, 
  3. Proof of identity
  4. Capital Gains proof
  5. 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.

Capital Gains Account Scheme Withdrawal

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.

1. Transfer of Account

• Change from savings to term deposit or vice versa is allowed.
• However,  transfer between Type B account and Type A account before maturity period is considered as a premature withdrawal. 
• 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.

2. 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.

3. 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. 
• 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.

4. 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.

5. 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.