The Income Tax Department has laid out various investment options for taxpayers having income from capital gains to reduce the capital gains tax. If a taxpayer is unable to invest in a new asset before the due date of furnishing the return of income, he/she can deposit the funds in a CGAS Account to claim the capital gain exemption. CGAS Scheme i.e. Capital Gains Account Scheme was introduced by the Central Government in the year 1988. A taxpayer who wants to claim an exemption under Capital Gains has an option to open a CGAS account and deposit the funds in it till the time he/she plans to invest in the specified investment as per the relevant section.
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What is Capital Gains Accounts Scheme or CGAS?
When there is a sale of a capital asset, such an income or loss is called Capital Gain or Capital Loss. If the taxpayer re-invests such Capital Gain into a specified asset within a specified time limit, they can claim a capital gain exemption under Section 54 to Section 54F. Sometimes, the specified time limit is long and goes beyond the due date of filing the tax return. In such cases, it becomes difficult to determine whether the Capital Gains would be taxable or not. Thus, the government introduced the concept of the CGAS Scheme i.e. Capital Gain Account Scheme in the year 1988. As a part of this capital gain scheme, the taxpayer has the option to open a CGAS account and park the funds till the time they re-invest to claim the exemption under Capital Gains. The taxpayer must deposit such funds before filing the Income Tax Return.
However, if the taxpayer does not utilise the amount in CGAS for the specified investment within the specified time limit, the Capital Gain exemption claimed in the ITR filed would be withdrawn. The entire amount of Capital Gain becomes taxable.
When can taxpayer deposit in Capital Gains Accounts Scheme?
The taxpayer can deposit the amount of capital gains in the CGAS account in the following cases:
| Taxpayer Type | Section | Capital Gain on |
| Individual / HUF | Section 54 | Sale of residential house |
| Individual / HUF | Section 54B | Sale of agricultural land |
| Any taxpayer | Section 54D | Compulsory acquisition of land and building |
| Any taxpayer | Section 54EE | Sale of long term capital asset |
| Individual / HUF | Section 54F | Sale of long term capital asset not being a residential property |
| Any taxpayer | Section 54G | Transfer of Asset if there is shifting of an industrial unit from an urban area |
| Any taxpayer | Section 54GA | Transfer of Asset if there is shifting of an industrial unit from an urban area to SEZ |
| Any taxpayer | Section 54GB | Transfer of a residential property |
How to open CGAS Account?
A taxpayer can open the CGAS Account with any of the authorised banks excluding the branches in rural areas.
To open the CGAS account, follow these steps:
- Make an application in Form A
- Submit documents such as PAN, address proof and photo
- Deposit money using cash, cheque, demand draft, etc either in a lump sum or in installments
- To claim an exemption under different sections, the taxpayer must open separate CGAS account and make separate applications
Types of Deposits under the Capital Gains Account Scheme
The taxpayer can choose the type of deposit considering criteria like liquidity, interest rate, restrictions on withdrawal, future plan for specified investment, etc.
- Type A – Savings Deposit
- The savings deposit is similar to a savings bank account. Interest is credited to the account at regular intervals and the rate of interest is similar to a savings bank account. The bank issues a passbook to the account holder and withdrawals can be done at any time.
- The savings deposit is similar to a savings bank account. Interest is credited to the account at regular intervals and the rate of interest is similar to a savings bank account. The bank issues a passbook to the account holder and withdrawals can be done at any time.
- Type B – Term Deposit
- The term deposit is similar to a fixed deposit account. Interest is credited to the account at regular intervals and the rate of interest is similar to a term deposit. The bank issues a deposit certificate to the account holder which should be submitted at the time of withdrawal. There are restrictions on withdrawals.
Withdrawals from CGAS
The taxpayer can withdraw the funds without any restrictions from the Type A -Savings Deposit. However, in the case of pre-mature withdrawal of funds from Type B – Term Deposit, the account holder should pay a penalty. The taxpayer can withdraw funds using Form C for the first withdrawal and Form D for subsequent withdrawals.
Once the taxpayer withdraws the funds, he/she must make the specified investment within 60 days. He/she must deposit the unutilised amount again into Savings Deposit.
Income Tax on Funds in CGAS
The taxpayer should deposit funds in the CGAS account before filing the Income Tax Return to avail the exemption under Capital Gains. Further, the taxpayer must retain the proof of deposit to submit to the Income Tax Department if asked for.
Interest in CGAS Deposit
The interest earned on Type A – Savings Deposit or Type B – Term Deposit is a taxable income under IFOS i.e. Income from Other Sources. It is taxable at slab rates. The bank may deduct TDS under Section 194A and issue a TDS Certificate i.e. Form 16A to the account holder. The taxpayer can claim the TDS credit in the Income Tax Return filed on the Income Tax Website.
Income Tax on Unutilised Deposit Amount
The taxpayer has a time limit of 60 days to invest the amount withdrawn from the CGAS deposit. If the taxpayer is unable to utilize the entire amount from the capital gain deposit scheme for specified investment to claim capital gains exemption, the unutilized amount is taxable in the Income Tax Return.
FAQs
The payment for deposit in the Capital Gains Account Scheme shall be made either in cash or cheque or demand draft along with the application. Such deposit can be made either in lump-sum or in installments.
The amount deposited in the Capital Gains Account can be withdrawn by making an application in Form C. (Download Form C). The amount so withdrawn has to be utilized within 60 days from the date of such withdrawal and only for the purpose of such withdrawal. The unutilized amount should be re-deposited immediately.
For closure, you need to fill form G. In case of closure of account due to death of the account holder, the legal heirs can claim the deposit through Form H. Lastly, if the amount not utilized remain in the Capital Gain Deposit Account Scheme even after a specified period of 2/3 years.
Hey @TanyaChopra
To claim Capital Gains Exemption under Section 54EC, you need to file ITR-2.
Read more about Section 54EC here
Details are as follow:
My queries/confusion:
Cost Inflation Index FY based on possession date (not booking date) as entry date and sale transferred (not biana date) as exit date, right?
Since it is a jointly held, I did not pay anything to acquire the commercial plot but father did. Now when we sell, 50% will be to each account, what would be my LTCG?
Please correct me if I’m missing something for my LTCG (>24 mo.):
(+) Sale Consideration: Rs. 25L (half of 50L overall joint)
(-) Transfer Expenses: Rs. 0 (constructed via cash not eligible, right?)
(-) Indexed Cost of Acquisition: 16.5L * 317/289 = 18.1L
(-) Indexed Cost of Improvement: ?? (what exactly is this?)
Long-Term Capital Gain: 6.9L
If possession date and sale date is 24+ months , can I save LTCG tax by just investing Rs. 6.9L in IRFC/NHAI/PFC/IRFC bond under Section 54EC?
If yes, can I keep 18.1L in my bank account or invest in FD / MF? Any further suggestion?
@Sakshi_Shah1 can you help ?
Hey @learner
Indexed Cost of Acquisition is calculated as Cost of Acquisition * CII for Sale Year/ CII for Purchase Year. In your case, CII for Sale Year would be CII of the year in which you sold property. CII for Purchase Year would be CII of the year in which you got the possession of property.
If you have not contributed towards the purchase consideration, you will not be treated as a co-owner for income tax purpose. Thus, the entire LTCG would be taxed in the ITR of your father as Sale Value - Transfer Expenses - Indexed Cost of Acquisition
Cost of Improvement is a capital expenditure incurred by an assessee for making improvement in the property. It can be claimed as a deduction for computing capital gains. Indexed Cost of Improvement is calculated as Cost of Improvement * CII of year of sale / CII of year of improvement
If the period of holding is more than 24 months, income is treated as LTCG. You can claim exemption under Section 54EC if you fulfill all the conditions as per the Section. Read more about it here
Thanks a lot @Sakshi_Shah1 for the detailed answer and @Amulya_Garg for ensuring my queries addressed.
I do have a follow-up queries.
Since the tax is under hand of my father as he only purchased the commercial plot, can I enjoy 50% of sale proceeds that is credited to my bank account without any tax? “Enjoy” in my term refer to Multi-Option-Deposit (Bank) with quarterly payout.
My father has purchased another commercial plot, do you have any relevant article that explains how tax can be saved by utilizing the sale proceeds to buy another commercial plot (before or after)?
Hello @learner
Ideally, since your father is the owner of the property, the sale proceeds should be credited to his bank account. If the money has already been credited to your account, there are chances that the Assessing Officer i.e. AO might question the source of funds and a justification why they are not reported as income in the ITR.
Capital Gains on sale of commercial plot can be exempt if the taxpayer invests in any of the following assets:
The registration of commercial property comes under both father and my name (co-owners), which is how sale proceeds is credited to each of us, however, all the payments for purchase of property were done by father only. And my father will report the whole capital gains in his account.
Will this below stands true in my ITR if I do not report?
And thanks for 2nd point.
@Sakshi_Shah1 can you help?
Hey @learner
Your father should report the capital gains in his ITR. You need not report the same in your ITR. However, you must hold relevant proofs of the capital gains taxed in your father’s ITR in case the AO questions source of funds in your account.
The income tax department introduced a new Section 54EE of Income Tax Act with effect from 1st April 2017. Section 54EE provides for exemption from Capital Gains Tax on the sale of any long-term capital asset by investing into units of specified funds.
A taxpayer can claim an exemption u/s 54EE if they fulfill all the below conditions:
You can read more about Section 54EE here.
Got questions? Shoot’em here.