Taxpayers can park gains in specified accounts under the Capital Gains Account Scheme (CGAS), which postpones capital gains tax obligations on asset transactions like real estate. However, the Government of India launched the Capital Gains Account Scheme in 1988 to encourage investment in certain assets and assist taxpayers in effectively managing their capital gains. We will cover every necessary information regarding this post.
Capital Gain Account Scheme
The Central Government launched the Capital Gains Account Scheme in 1988. The period of time that the depositor has to reinvest and take advantage of the exemption is frequently greater than the deadline for filing the income return.
Under the scheme, the taxpayer is provided with the opportunity to deposit any unused capital profits in a Capital Gains Account. The scheme allows for the same capital gain exemption as reinvestment of any capital gains.
Objective Of Capital Gain Account Scheme
The main objective of this scheme is to make it easier for taxpayers to reinvest their capital gains and postpone paying taxes. Taxpayers may seek an exemption from capital gains tax under a number of provisions of the Income Tax Act including provisions 54, 54B, 54D, 54F and 54G provided the money is reinvested in accordance with certain requirements. CGAS permits the depositor to temporarily place profits into specified accounts in order to retain the tax exemptions even if they are not reinvested right away.
Benefits Of Capital Gain Account Scheme
- Any taxpayer who has realized capital gains from the sale of an asset and plans to reinvest the profits in order to claim an exemption under sections 54, 54B, 54D, 54F or 54G but need more time to plan or complete the investment is eligible to benefit from CGAS.
- It gives financial planners flexibility while guaranteeing compliance. Those who sell their assets close to the end of the fiscal year and might not have enough time to reinvest their proceeds to claim tax exemptions within the same fiscal year would benefit most from this scheme.
How To Open An Account
- Visit approved bank offices, complete application forms, provide proof of address, PAN card and asset sale information to create a capital gains account.
Types Of Accounts
Type A:
This functions similarly to a savings account and offers interest in a manner similar to that of a savings account. Because of its liquidity, taking money out at any moment is simple.
Type B:
This has interest rates that are comparable to those of a term or fixed deposit. A maximum of three years may be spent on this kind of account.
Withdrawal From Capital Gains Account Scheme
As previously stated, withdrawals from Type A savings accounts are unrestricted. Premature withdrawal from a Type B account is permitted, but only after the funds have been transferred to a Type A account there may also be associated penalties.
Any money that is withdrawn must be used for the designated investment within 60 days of the withdrawal any money that is not used can be promptly redeposited into a Type A account. When withdrawing money from an account for the first time, Form C must be completed, and when withdrawing money again, Form D must be completed, along with information on how the last withdrawal was used. As a result, the depositor does not receive a checkbook or debit card.
Deposit Procedures
- Depending on your convenience and the availability of money, you have the option to deposit the whole amount all at once or in installments.
- Recall that in order to take advantage of the tax exemptions under CGAS, the deposit needs to be made within the allotted time frame starting on the date of the capital gains transaction.
Who Can Deposit In A Capital Gains Account Scheme?
The following lists the categories of taxpayers with capital gains who can make investments in CGAS under Sections 54 to 54F of the Income-tax Act, 1961 Act:
| Section number | Capital gains made on | Category of person |
| 54 | Sale of residential house | individual or HUF |
| 54B | Sale of land used for agricultural purpose | Individual or HUF |
| 54D | Compulsory acquisition of land and building | Any taxpayer |
| 54E | Sale of any long term capital asset | Any taxpayer |
| 54EC | Sale of long term capital asset being land or building or both | Any taxpayer |
| 54F | Sale of any long term capital asset not being residential property | Individual or HUF |
| 54G | Transfer of asset (machinery, plant or building, land or right in land or building) in case of shifting of industrial undertaking from urban area | Any taxpayer |
| 54GA | Transfer of asset/s (machinery, plant or building, land or right in land or building) in case of shifting of industrial undertaking from urban area to Special Economic Zone | Any taxpayer |
| 54GB | Transfer of residential property | Any taxpayer |
Guide To Opening An account
Required Documents:
- Identification proof (Aadhaar card, PAN card, etc)
- Address proof (utility bills, passport,etc)
- Proof of the sale deed/transaction that resulted in the capital gains.
Choosing the right form:
- Form A must be completed in order to open either kind of account. Make sure all information is entered accurately to prevent inconsistencies later on.
Submit the application:
- Go to the closest bank branch that has been approved to provide CGAS services.
- Submit in the completed documents, the documents that are needed and the first deposit amount.
FAQ’s
How long is it possible to keep funds in a capital gains account?
A Type B account can only be opened for a maximum of three years. Choosing a term that corresponds to the amount of money the depositor intends to invest for example, two years for buying a new house or three years for construction is necessary.
How and where do I establish a CGAS account?
Since CGAS is essentially a bank account, you may open a CGAS account by contacting your bank. Among the banks taking part in this initiative are Syndicate Bank, the Central Bank of India, IDBI Bank, Bank of Baroda, State Bank of India and Corporation Bank.
I have not been able to utilize the funds lying in CGAS even after 3 years ? What is the implication?
The whole amount that remains unutilized will be regarded as long-term capital gain in the year of its expiry, and you will be responsible for paying capital gain tax on that date, if you are unable to use the proceeds under CGAS for the particular purchase.