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Capital Gains Accounts Scheme (CGAS), 1988

Updated on: Jun 6th, 2024

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12 min read

The Income Tax Act not only provides provisions for imposing taxes on the income of citizens but also offers number of ways through which one can claim deductions and rebates. The deductions are allowed based on the way the taxpayers spend their income.

One such deduction offered to salaried individuals is the standard deduction. You must know that salaried individuals and pensioners can claim a certain amount under standard deduction by default without any investment or spending of money by the taxpayers. The provision was taken down for a number of years and was re-introduced during the Budget announcement in 2018.

Here is everything you should know about the standard deduction for salaried individuals.

Who is Eligible to Claim a Standard Deduction?

The standard salary deduction can be claimed by individuals receiving salary and pension, excluding business owners i.e. any individuals having income under the head salary will be eligible to claim a standard deduction up to Rs 50,000.

Purpose of Standard Deduction 

The introduction of standard deduction aims to achieve the following:

  • Simplify tax filing by reducing paperwork and enabling deductions regardless of actual expenses.
  • Offer tax relief specifically to middle-class salaried individuals.
  • Extend benefits to pensioners through the standard deduction.

Budget 2024 Update

Salaried taxpayers are eligible for the standard deduction of Rs. 50,000 under the old and new tax regime from FY 2023-24. There has been no update in Budget 2024.

Standard Deduction in New Tax regime

Budget 2020 introduced the new tax regime. Under this new regime, the taxpayers have the option to pay concessional tax rates. However, major deductions and exemptions are not allowed under this new regime. 

Budget 2023 was amended, allowing to claim a standard deduction of Rs 50,000 in the new regime as well. Thus now you will be able to claim the standard deduction of Rs 50,000 both under the new and old regime.

How is standard deduction calculated in the case of multiple employers in one year?

The standard deduction is available as a flat deduction from the total salary earned by the employee in a particular financial year. It does not depend on the number of jobs changed by the employee. Hence one flat deduction is available for the cumulative salary earned from all the employers. For FY 2023-24, the standard deduction remains the same as the previous year at Rs.50,000.

Standard Deduction – Union Budget 2018

Finance Minister Arun Jaitley introduced a standard deduction of Rs. 40,000 in Budget 2018, giving the salaried class something to rejoice about. It replaced the transport allowance of Rs. 19200 and medical reimbursement of Rs. 15,000 per annum.

Interestingly, the provision of Standard Deduction was earlier available. However, it was abolished in the Finance Act 2005. 

The standard deduction is usually deducted from the gross salary and claimed as a deduction. This deduction can be claimed by all salaried employees irrespective of category and need of any investment. 

Standard Deduction – Interim Budget 2019

The Interim Budget presented on 1 February 2019 included numerous tax benefits for the salaried and the middle class. Among them, an additional amount of Rs.10,000 (increased from Rs.40,000) to the Standard Deduction is a noteworthy move.

With the Standard Deduction being Rs 50,000 now, it will help taxpayers immensely to reduce their tax outgo. Let us understand this with a small example:

Particulars

Until AY 2018-19

From AY 2019-20

From AY 2020-21

Gross Salary (in Rs.)

8,00,000

8,00,000

8,00,000

(-) Transport Allowance

19,200

Not Applicable

Not Applicable

(-) Medical Allowance

15,000

Not Applicable

Not Applicable

(-) Standard Deduction

Not Applicable

40,000

50,000

Net Salary

7,65,800

7,60,000

7,50,000

From the above, it is evident that the taxable salary has come down on account of the standard deduction.

standard deduction budget 2019

Standard Deduction for Pensioners

In a recent clarification issued by the Income tax department, if a taxpayer has received a pension from the former employer, it is taxable under the head ‘Income from Salaries’.

Therefore, the taxpayer can claim a standard deduction of Rs. 50,000 or the amount of pension, whichever is less.

Documents Required for Standard Deduction 

No supporting documents are required to claim the standard deduction for salary income. However, for filing income tax returns, you will need to provide the following documents and complete the necessary forms:

  • Bank statements for the relevant financial year.
  • Income statements from interest or fixed deposits.
  • TDS (Tax Deducted at Source) certificates.
  • Investment documents.
  • Form 26AS and Form AIS.

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Frequently Asked Questions

Should I mandatorily open a Capital gain account scheme to claim exemption u/s 54,54F etc?

No, only if you are not able to invest the proceeds in the specified assets before the due date of filing u/s 139(1) and you want to claim exemption on the same then you will have to invest in CGAS. The purpose of the scheme is to commit the fund to be utilised for the specific purpose.

Where can I open the CGAS account?

CGAS is basically a bank account (Fixed Deposit), So you can contact your bank who can assist you in opening the CGAS account.

What is the maximum duration for which I can keep the amount in a CGAS account ?

You can keep the amount in CGAS for a maximum period of 3 years from the date of transfer/Sale of such asset.

I have not been able to utilise the funds lying in CGAS even after 3 years ? What is the implication ?

If you are not able to utilise the proceed in CGAS for the specific purchase, then the entire unutilised amount will be deemed to be considered as long-term capital gain in the year of such expiry, and you are liable to pay the capital gain tax on such expiry.

Are there any conditions for withdrawing the amount from CGAS? Does Closure require AO approval?

To withdraw the amount from CGAS, one needs to submit the details in Form G along with supporting documents to the Assessing Officer(AO). Once the AO is satisfied that all documents are in order and the tax due on such deemed capital gain is paid, Form G will be approved.

However it is also worth mentioning the point that process closure of CGAS accounts depends from one bank to another. Certain banks allow the closure of CGAS accounts based on self declaration.

Does CGAS account provide interest?

Yes since CAGS is essentially a Fixed deposit in a bank , It provides interest.

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Quick Summary

The Income Tax Act includes provisions for imposing taxes on income and deductions for taxpayers. Salaried individuals can claim a standard deduction of Rs 50,000 for simpler tax filing. The introduction of the standard deduction aimed to simplify filing, offer tax relief to the middle class, and extend benefits to pensioners. The deduction is available in both old and new tax regimes.

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