The Income Tax Department provides taxpayers with various investment options under sections 54 to 54GB, allowing individuals with capital gains income to reduce their capital gains tax liability. If a taxpayer cannot invest in a new asset before the income tax return due date, they have the option to deposit the funds in a CGAS Account to avail of the capital gain exemption. The CGAS Scheme, initiated by the Central Government in 1988, allows taxpayers seeking capital gains exemption to open an account and deposit funds until they decide to invest in specified investments as per the relevant section.
What is the Capital Gains Accounts Scheme (CGAS)?
Taxpayers can claim a capital gain exemption under Section 54 to Section 54GB if they reinvest the Capital Gain into a specified asset within a specified time frame. However, sometimes the time frame extends beyond the due date for filing tax returns, making it challenging to determine the taxability of the Capital Gains.
Hence, to address this issue, the government introduced the CGAS Scheme (Capital Gain Account Scheme) in 1988. Under this scheme, taxpayers have the option to open a CGAS account and temporarily deposit the funds until they reinvest to claim the exemption under Capital Gains. However, taxpayers must deposit such funds before filing their Income Tax Returns.
Furthermore, if the taxpayer does not utilize the amount in the CGAS for the specific investment within the provided time limit, the exemption claimed will be withdrawn. Subsequently, the entire amount of Capital Gain will become taxable.
Key Points of CGAS Account
- Transfer of Account
- The taxpayer can transfer their account from one branch to another branch within the same bank.
- Taxpayers can change the nature of the deposit from Type A to Type B and vice versa. However, transferring funds from a Type B to a Type A account before maturity will be deemed a premature withdrawal. Furthermore, submitting Form B is necessary for converting the account.
- Nomination
- To nominate an inheritor for the account upon the depositor’s demise, Form E must be submitted. Alternatively, changing the nominee requires submission of Form F.
- Up to three persons can be nominated, and any amount to be received by the nominees will be in the order of their nomination. Further, Accounts opened on behalf of minors, HUFs, AOPs, BOIs, or firms are not eligible for nomination. However, a minor can be nominated, and the depositor can appoint a person to receive the amount in the event of their death and during the minority of the nominee.
- Loan
- It is not permissible to secure a loan against the Capital Gains Account Scheme. Additionally, the deposit certificate cannot be used as collateral or guarantee, and also can not create any charge on it.
- It is not permissible to secure a loan against the Capital Gains Account Scheme. Additionally, the deposit certificate cannot be used as collateral or guarantee, and also can not create any charge on it.
- Closure of Account
- To close the account, it is necessary to get permission from the jurisdictional income tax officer.
- Further, Form G needs to be filed along with the permission of the jurisdictional income tax officer for closing an account.
Eligible persons to deposit in CGAS
In the case where the following taxpayers fail to meet the specified investment timeline, they must deposit these unutilized capital gains into a CGAS Account before the due date of filing ITR.
| Taxpayer | Capital Gains from | Section |
| Individual or HUF | Sale of Residential House | 54 |
| Individual or HUF | Sale of Agricultural Land | 54B |
| Any taxpayer | Compulsory Acquisition of Land and Building | 54D |
| Any taxpayer | Sale of any Long-term capital asset | 54E |
| Any taxpayer | Sale of Long-term capital asset being Land or Building or Both | 54EC |
| Individual or HUF | Sale of any Long-term capital asset other than residential property | 54F |
| Any taxpayer | Transfer of machinery, plant or building, land or right in land or building in case of shifting of industrial undertaking from urban area | 54G |
| Any taxpayer | Transfer of machinery, plant or building, land or right in land or building in case of shifting of industrial undertaking from the urban area to Special Economic Zone (SEZ) | 54GA |
| Any taxpayer | Transfer of Residential Property | 54GB |
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How to open a CGAS Account?
A taxpayer can open the CGAS Account with any of the authorized 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 various criteria like liquidity, interest rate, restrictions on withdrawal, plan for specified investments, etc.
- Type A – Savings Deposit
A savings deposit is much like a savings bank account. In this account, the bank credits interest at regular intervals, similar to a savings bank account. Additionally, the bank issues a passbook to the account holder, who can make withdrawals at any time. - Type B – Term Deposit
The term deposit is similar to a fixed deposit account. The bank credits interest to the account at regular intervals, offering a rate similar to a term deposit. Furthermore, the account holder receives a deposit certificate from the bank, which needs to be presented during withdrawal. However, under this account, there are certain restrictions for withdrawal.
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.
After withdrawing the funds, the taxpayer must invest the specified amount within 60 days. Additionally, they need to deposit any remaining unused funds back into the Savings Deposit account.
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 a Type A or Type B account is a taxable income under Income from Other Sources at slab rates. The bank may deduct TDS on interest under Section 194A and issue a TDS Certificate i.e. Form 16A to the account holder. The taxpayer can claim credit of TDS while filing ITR.
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 CGAS for a specified investment to claim capital gains exemption, the unutilized amount is taxable in the ITR.
FAQs
The depositor shall make the payment for the deposit in the Capital Gains Account Scheme either in cash, by cheque, or through a demand draft along with the application. Deposits can be a lump sum or in installments.
You can withdraw the amount deposited in the Capital Gains Account by applying Form C. The withdrawn amount must be utilized within 60 days from the date of withdrawal and solely for the purpose specified in the withdrawal. Any unutilized amount should be redeposited immediately.
For closure, you need to fill out form G. In case of closure of the account due to the death of the account holder, the legal heirs can claim the deposit through Form H. Lastly, if the amount not utilized remains 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.
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