Capital Gain Accounts Scheme (CGAS)

Capital gain is the profit gained from selling a property, be it a movable or immovable property. Capital gains are liable for taxation irrespective of whether they are long-term or short-term capital gains. Capital gain accounts scheme (CGAS) helps individuals in protecting their income earned from proceeds of the sale of residential property from capital gain tax liability. Under Section 54 of the Income Tax Act, the income from capital gains is required to be re-invested within a specific period (maximum of 3 years) to avoid the liability to pay tax. If the due date for filing income tax falls before the specified term, it is necessary that the amount is deposited as an investment before the last date to benefit capital gain tax exemption. Hence, in situations where one cannot find a suitable residential property to invest in such a short period, the proceeds from the sale of a property can be deposited in a Capital Gain Accounts Scheme (CGAS) to optimize the tax outgoings.

Opening a Capital Gain Account

A capital gain account can be opened in any authorized bank recommended by the Government which includes Central Bank of India, State Bank of India and its subsidiaries, Syndicate Bank, IDBI Bank, Bank of Baroda and Corporation Bank.  Capital Gain Account facility is unavailable in rural banks. Capital Gain Account can be opened under two types:

• Type A – Savings Account
• Type B – Term Deposit Account

Type A – CGAS Savings Account:

This is similar to a general savings account, and the payable interest is the same as that of interest paid for a normal savings account by that particular bank. This account type permits multiple withdrawals, which makes it a better option to deposit.

Type B – CGAS Term Deposit Account:

This account type resembles a fixed deposit account where the amount is locked for a specific period of time. The interest offered is similar to the interest paid on fixed deposit accounts by the respective bank. For opening an account, an application (Form A) should be made and submitted along with the following documents.

1. Address proof
2. Copy of PAN card
3. Photograph

The copy of Form A is provided below.

Withdrawal from Capital Gain Account

To withdraw the deposited amount from the Capital Gain Account, an application through an appropriate form should be made.

Withdrawal from Type A (Savings) account:

As mentioned earlier, multiple withdrawal from Type A account is possible and should be applied using Form C, a copy of which is given below.  

Withdrawal from Type B (Term Deposit) Account:

Since this is similar to a fixed deposit account, withdrawal from the deposit is permitted only after converting it to Type A account along with a penalty of 1% interest for pre-mature withdrawal. This can be done by applying through Form B. A copy of Form B is attached below. Subsequent withdrawals can be made through Form D providing the details of the manner in which the previously drawn money was utilized. A copy of Form D is attached below. The withdrawn amount must be used within 60 days and only for the purpose it was drawn. The balance amount should be re-deposited immediately.  Failing to comply with the rule leads to the loss of exemptions.

Closing Capital Gain Account

The closure of the account requires the approval of the Income Tax Officer. The un-utilized amount is liable to be taxed immediately after the closure of the account. The request for closure can be applied by form G. On the occurrence of the death of an individual, request for closure can be made by the nominee through Form H.

Features of Capital Gain Account Scheme

1. Individuals and HUF alone are permitted to open a CGAS account.
2. The amount deposited cannot act as a security or guarantee for any loan.
3. The interest earned from such an account is liable to tax.
4. Switching of banks is inadmissible. But, accounts can be transferred within branches.
5. It allows the appointment of a nominee and also changes in the nomination is permitted.

Taxpayers should note that proof of the CGAS bank account must be furnished at the time of filing the income tax returns which are to be tax-exempted.