Capital Gains Accounts Scheme (CGAS)

Capital gains arise when you sell a capital asset such as a house, land, or investments at a profit. In India, these gains are taxable under the Income Tax Act. However, the law also allows taxpayers to save or reduce this tax if the capital gains are reinvested in specified assets, such as another residential property or certain government bonds, within a given time period.

In many real-life situations, immediate reinvestment may not be possible. You may have sold a property but not yet finalised a new purchase, or construction of a new house may take time. This is where the Capital Gains Accounts Scheme (CGAS) becomes relevant. CGAS allows taxpayers to temporarily park their capital gains in a designated bank account while still claiming the tax exemption.

By depositing the unutilised capital gains into a CGAS account before the income tax return filing deadline, taxpayers can protect their exemption eligibility. The amount deposited must later be used strictly for the intended purpose, such as purchasing or constructing a property, within the prescribed timelines. CGAS therefore acts as a bridge between asset sale and reinvestment, helping taxpayers stay compliant while managing cash flow effectively.

The Capital Gains Account Scheme (CGAS) is a government-backed scheme that helps taxpayers save capital gains tax when they are unable to reinvest their gains immediately. It is mainly used when capital gains are eligible for exemption under Sections 54, 54B, 54F, or 54EC of the Income Tax Act, but the reinvestment has not yet been completed.

Under CGAS, the unutilised capital gains amount is deposited into a special account with authorised public sector banks. This deposit is treated as if the money has already been reinvested, allowing the taxpayer to claim the tax exemption while complying with income tax rules.

The funds kept in a CGAS account must be used only for the specified purpose, such as buying or constructing a residential property, within the prescribed time limits. If the amount is not used within the allowed period, it becomes taxable in the year the deadline expires.

In simple terms, CGAS acts as a safe holding account for capital gains, giving taxpayers extra time to plan reinvestment without losing tax benefits.

The primary purpose of the Capital Gain Deposit Scheme (CGAS) is to help taxpayers legally save capital gains tax when immediate reinvestment is not possible. It acts as a temporary parking solution for capital gains while keeping tax exemption benefits intact.

Key objectives of CGAS include:

• Allowing time for reinvestment:
  Tax laws require capital gains to be reinvested within a fixed time. CGAS provides extra breathing room when a new property or asset is not yet finalised.
• Protecting tax exemption eligibility:
  By depositing gains into a CGAS account before the income tax return filing deadline, taxpayers can still claim exemptions under Sections 54, 54B, 54F, and 54EC.
• Ensuring disciplined use of funds:
  The money deposited can only be withdrawn for the specified purpose, such as purchasing or constructing a residential property, reducing the risk of misuse.
• Supporting phased construction:
  For house construction, expenses often happen over time. CGAS allows withdrawals in stages, matching actual construction needs.
• Reducing last-minute investment pressure:
  Taxpayers are not forced into rushed decisions just to save tax, helping them choose better properties or investments.

The Capital Gains Accounts Scheme (CGAS) is available to specific categories of taxpayers who wish to claim exemption on capital gains but are unable to reinvest the amount immediately. The eligibility criteria are straightforward and defined under the Income Tax Act.

You are eligible to open a CGAS account if:

• You are a taxpayer in India:
  Resident individuals and Hindu Undivided Families (HUFs) can open a CGAS account. Non-resident Indians (NRIs) may also open a CGAS account, subject to applicable FEMA rules.
• You have earned eligible capital gains:
  The scheme applies to long-term capital gains arising from the sale of assets such as residential property, agricultural land, or other specified capital assets.
• You are eligible for capital gains exemption:
  The capital gains must qualify for exemption under Sections 54, 54B, 54F, or 54EC of the Income Tax Act.
• Immediate reinvestment is not completed:
  You have not fully utilised the capital gains for purchase or construction of a new asset before the income tax return filing due date.
• You open the account within the prescribed timeline:
  The CGAS account must be opened and funded before the due date for filing your income tax return under Section 139(1).
• You open the account with an authorised bank:
  CGAS accounts can only be opened with notified public sector banks approved by the government.

Meeting these conditions allows taxpayers to use CGAS as a compliant way to defer tax while planning proper reinvestment.

Under the Capital Gains Accounts Scheme (CGAS), taxpayers can choose between two types of accounts based on how they plan to use the funds.

Type A Account (Savings Type):

This account works like a regular savings account. It is ideal when funds are required in stages, such as during house construction. Multiple withdrawals are allowed, subject to CGAS rules.

Type B Account (Term Deposit Type):

This account is similar to a fixed deposit. It suits taxpayers who plan to use the capital gains at a later date in one go, such as for a single property purchase.

Choosing the right account depends on your reinvestment timeline and cash flow needs.

To open a Capital Gains Account under the Capital Gains Accounts Scheme (CGAS), taxpayers must submit specific documents to an authorised public sector bank. Having these documents ready helps ensure a smooth and quick account-opening process.

Checklist of required documents:

• CGAS Application Form (Form A):
  This is the prescribed form for opening a CGAS account. It must be filled accurately, mentioning whether you are opening a Type A (savings) or Type B (term deposit) account.
• PAN Card:
  A self-attested copy of your Permanent Account Number (PAN) is mandatory for tax identification and compliance.
• Proof of Identity:
  Any valid government-issued ID such as Aadhaar card, passport, voter ID, or driving licence can be submitted.
• Proof of Address:
  Recent address proof such as Aadhaar, passport, utility bill, or bank statement is required.
• Capital Gains Proof:
  Documents related to the sale of the asset, such as the sale deed, allotment letter, or capital gains computation statement, may be requested by the bank.
• Photographs:
  Recent passport-size photographs of the account holder are generally required.
• Income Tax Return (if available):
  A copy of the latest filed ITR may be asked for verification, especially if the bank requires additional compliance checks.
• Cheque or Demand Draft:
  To deposit the capital gains amount into the CGAS account.

Banks may ask for additional documents depending on internal KYC norms. It is advisable to check with the specific authorised bank before visiting the branch.

Opening a Capital Gains Account under the Capital Gains Accounts Scheme (CGAS) is currently an offline, branch-based process. Follow these simple steps:

1. Visit an authorised bank branch:
   Go to a notified public sector bank that offers CGAS accounts.
2. Collect and fill Form A:
   Request the CGAS application form and fill in personal details, PAN, account type (Type A or Type B), and deposit amount.
3. Submit required documents:
   Attach KYC documents, capital gains proof, photographs, and any other documents requested by the bank.
4. Deposit the capital gains amount:
   Make the deposit through cheque, demand draft, or cash (as permitted by the bank).
5. Account verification and opening:
   The bank verifies the documents and opens the CGAS account.
6. Receive passbook or deposit receipt:
   You will receive a passbook (Type A) or fixed deposit receipt (Type B) as proof of account opening.

Ensure the account is opened before the income tax return filing due date to claim exemption.

Withdrawals from a Capital Gains Account Scheme (CGAS) account are allowed only for the specified purpose, such as purchasing or constructing a property. The process is regulated to ensure proper use of funds.

1. Submit withdrawal application (Form C):
   Fill Form C and mention the amount required and the purpose of withdrawal.
2. Visit the authorised bank branch:
   Submit the form along with your CGAS passbook or deposit receipt.
3. Receive withdrawal amount:
   The bank releases the amount, usually through cheque or direct payment.
4. Use funds within 60 days:
   The withdrawn amount must be used within 60 days for the stated purpose.
5. Submit utilisation proof:
   If the full amount is not used, the unutilised balance must be redeposited into the CGAS account using Form D.
6. Multiple withdrawals allowed:
   You can make multiple withdrawals, as long as they align with CGAS rules.

Proper documentation and timely utilisation are essential to avoid tax implications.

A Capital Gains Account Scheme (CGAS) account can be closed only after the purpose for which it was opened is completed or when the allowed time limit expires. The closure rules depend on how and when the funds are utilised.

Scenario 1: Full utilisation within the time limit

If the capital gains amount is fully used for purchasing or constructing the new asset within the prescribed period, the CGAS account can be closed. For closure, you must submit Form G along with approval from the assessing income tax officer. The remaining balance, if any, is released.

Scenario 2: Partial or non-utilisation

If the deposited amount is not fully utilised within the allowed period, the unutilised balance becomes taxable as capital gains in the year the exemption period ends. After tax is paid, the account can be closed.

Scenario 3: Death of the account holder

In case of death, the CGAS account is closed, and the balance is paid to the nominee or legal heir. The unutilised amount is taxable in the hands of the deceased, not the nominee.

The Capital Gains Accounts Scheme (CGAS) comes with strict timelines for deposit, utilisation, and taxation. Understanding these deadlines helps avoid loss of tax exemption.

Key points to remember:

• CGAS does not extend the original reinvestment timelines; it only safeguards the exemption.
• Funds cannot be freely withdrawn like a normal bank account.
• Any amount left unused after the deadline becomes taxable as capital gains.

Following these timelines is essential to retain CGAS tax benefits.

Using the Capital Gains Accounts Scheme (CGAS) can help save significant tax, but small mistakes can lead to loss of exemption. Here are common errors taxpayers should avoid:

• Missing the deposit deadline:
  Not opening or funding the CGAS account before the income tax return filing due date can result in full taxation of capital gains.
• Assuming CGAS extends time limits:
  CGAS does not increase the 2-year or 3-year reinvestment timelines. It only parks the funds temporarily.
• Withdrawing money for non-approved purposes:
  Using CGAS funds for personal or unrelated expenses violates scheme rules and triggers tax liability.
• Not redepositing unused withdrawals:
  Any amount withdrawn but not used within 60 days must be redeposited. Failure to do so can cause exemption issues.
• Improper documentation:
  Not maintaining bills, agreements, or utilisation proof can create problems during income tax assessment.
• Wrong account type selection:
  Choosing Type B when frequent withdrawals are required may cause liquidity issues.

Avoiding these mistakes ensures smooth compliance and protects your capital gains tax exemption.

The Capital Gain Account Scheme (CGAS) offers clear tax advantages when capital gains cannot be reinvested immediately. Its benefits are best understood through practical use cases.

Use case 1: Delayed property purchase
If you sell a residential property and plan to buy another one but the deal is delayed, depositing the capital gains into a CGAS account allows you to claim exemption under Section 54, even though the new property is not yet purchased.

Use case 2: House construction over time
Construction projects often span several years. CGAS enables you to claim tax exemption while withdrawing funds in phases, as construction progresses, without losing benefits under Sections 54 or 54F.

Use case 3: Avoiding immediate tax outflow
Without CGAS, unutilised capital gains become taxable. CGAS defers this tax, helping you manage cash flow more efficiently.

Use case 4: Compliance and peace of mind
Since CGAS is government-backed and rule-based, it provides a safe, compliant way to protect exemptions while planning reinvestment carefully.

Recent administrative and procedural changes have made compliance under the Capital Gains Accounts Scheme (CGAS) more structured. Key updates and clarifications to note in 2025 include:

• Digital submission of Form A in select banks:
  Some authorised public sector banks now require Form A (account opening form) to be submitted digitally or generated through their internal systems, even though the process remains branch-based.
• Income Tax portal reminders linked to CGAS claims:
  The Income Tax Department has increased the use of system-generated reminders and alerts when CGAS exemptions are claimed but utilisation timelines are approaching or have lapsed.
• Stricter scrutiny on withdrawals:
  Certain banks may insist on Income Tax Officer (ITO) approval before allowing large or final withdrawals, especially close to the reinvestment deadline.
• Improved tracking during assessments:
  CGAS deposits and withdrawals are now more closely tracked during scrutiny assessments to verify proper utilisation.
• Importance of CBDT circulars:
  Taxpayers are advised to stay updated with CBDT notifications and circulars, as procedural rules and documentation requirements may change without major public announcements.

Staying informed helps avoid delays, rejections, and unintended tax exposure.

The Capital Gains Accounts Scheme (CGAS) is a practical and reliable tool for taxpayers who want to save capital gains tax but are unable to reinvest immediately. It offers a legal way to defer tax while giving sufficient time to plan the purchase or construction of a new asset. By temporarily parking unutilised capital gains, CGAS ensures that eligible exemptions are not lost due to timing constraints.

However, the benefits of CGAS depend heavily on correct usage. Choosing the right account type—Type A for phased withdrawals or Type B for lump-sum use—plays a key role in managing cash flow smoothly. Equally important is tracking critical deadlines, such as account opening, withdrawal utilisation, and reinvestment timelines, as missing them can trigger tax liability.

Maintaining proper documentation, including withdrawal forms, utilisation proofs, and bank records, is essential for smooth tax assessments. When used carefully and in compliance with rules, CGAS provides flexibility, control, and peace of mind while managing capital gains reinvestment efficiently.