Capital Gains Accounts Scheme (CGAS), 1988

What is Capital Gains Account Scheme, 1988?

The Capital Gains Account Scheme (CGAS) of 1988 is a scheme introduced by the Government of India under the Income Tax Act, 1961. It provides taxpayers with a means to save on capital gains tax by depositing the proceeds from the sale of certain assets into designated accounts. These accounts are maintained with authorized banks or financial institutions.

The tax payers can avail of the benefit of exemption from Capital Gains, if the amount of Capital Gains or the net consideration is deposited in the public sector bank on or before the due date of filling a return of income by the tax payers.

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Benefits of the Capital Gain Account Scheme, 1988

The Capital Gain Account Scheme, 1988, offers several benefits to individuals who are eligible to avail of its provisions. Here are the key benefits:

• Roll-over of Capital Gains:
  The scheme allows taxpayers to defer capital gains tax on the sale of capital assets by reinvesting the gains into specified assets, such as residential or commercial property, or bonds.
• Deferral of Tax Liability:
  By depositing the capital gains into a Capital Gain Account, individuals can defer the tax liability until the new asset is purchased or the funds are utilized.
• Flexible Utilization:
  Funds can be deposited into a Capital Gain Account for either a Deposit Account (used for short-term deposits) or a Savings Account (used for long-term gains).
• Specified Investments:
  The scheme facilitates investments in long-term assets like residential/commercial property, bonds issued by NABARD, NHAI, or REC, which qualify for tax benefits.
• Avoidance of Penalties:
  By utilizing the scheme, individuals can avoid penalties associated with the non-utilization of capital gains within the stipulated time.
• Partial Utilization:
  Funds deposited can be partially utilized for purchasing assets, allowing flexibility in the use of capital gains.
• Reinvestment Benefits:
  The scheme encourages reinvestment of gains in specified assets, thereby promoting economic development through the sale and purchase of capital assets.
• Tax-Free Interest:
  The interest earned on the amounts deposited in Capital Gain Accounts is tax-free under Section 10(4A) of the Income Tax Act.

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Features of the Capital Gain Account Scheme, 1988

• Purpose:
  The CGAS allows taxpayers to deposit unutilized capital gains into a specified account, enabling them to claim exemption from capital gains tax, provided the gains are utilized within a specified period for acquiring or constructing a new asset.
• Types of Accounts:
  • Savings Account: For individuals or entities to deposit capital gains.
  • Fixed Deposit Account: Allows for the deposit of capital gains for a fixed period, typically up to 3 years, with a specified rate of interest.
• Eligibility:
  Taxpayers can open the CGAS account when they receive capital gains from the sale of assets, provided they intend to invest in specified new assets.
• Deposit Requirements:
  The unutilized capital gains must be deposited in a CGAS within six months from the end of the financial year in which the sale occurred.
• Withdrawal Rules:
  • The amount deposited must be used within a stipulated time frame:
    • For purchasing a new asset: 2 years from the end of the financial year in which the sale of the original asset took place.
    • For constructing a new asset: 3 years from the end of the financial year in which the sale took place.
• Interest and Taxation:
  • The account earns interest, which is taxable as per the prevailing tax rates.
  • Withdrawals from the account can only be made for the purpose of acquiring or constructing a new asset.
• Penalty for Non-Utilization:
  If the deposited amount is not utilized within the prescribed period, the taxpayer will lose the exemption benefit, and the amount will be subject to capital gains tax.
• Transfer of Funds:
  The amount deposited in CGAS can only be used for specific purposes as allowed under Sections 54, 54B, 54D, 54EC, and 54F of the Income Tax Act.
• Validity:
  The scheme has been continuously updated to accommodate changes in tax laws and investment options.

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Who can Deposit in Capital Gains Account Scheme, 1988?

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What is the Time Limit for Depositing in CGAS, 1988?

The Income Tax Act provides opportunities to minimize capital gains tax liabilities through Sections 54, 54F, and 54EC. Under these provisions, taxpayers can mitigate their tax burden by reinvesting their capital gains in specific avenues.

Section 54 and 54F allow individuals to save on capital gains tax by investing the entire proceeds from the sale of a property into a residential property. Alternatively, Section 54EC offers tax relief for investments in specified capital gains bonds. These investments must be made either within one year before the sale of the property or within two years following the transaction.

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When Can Someone Make a Deposit into a Capital Gains Account?

According to the Income Tax Act, a taxpayer who is unable to reinvest capital gains in specified assets before filing the return of income, but the specified time limit for the investment has not expired, is required to deposit the unutilized capital gains into a Capital Gain Account before filing the return of income. This should be done not beyond the due date for filing the return of income.

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What is the Eligibility for Depositing in CGAS?

Below are the conditions that should be met before depositing in the CGAS account -

• The taxpayer should have capital gains from the sale or transfer of assets specified in sections 54 to 54GB.
• The CGAS scheme is applicable only to Indian residents. Non-residents have to open a non-resident CGAS account (NRCGAS).
• The depositor has to furnish proof of capital gains from the sale of the specified assets.

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How to Open a Capital Gain Account Scheme?

Follow the below-mentioned steps to open a Capital Gains Savings Scheme account -

• Fill out form A and submit it along with necessary attachments like address proof, photo, and a copy of your PAN card.
• Now make the deposit using a cheque, cash, or demand draft. If you are depositing the amount through cash or cheque, the date of deposit will be the date on which the draft is received.
• You can deposit lump sum money or in installments.
• You need to open separate accounts if you wish to invest in various types of assets under different sections.

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What are the Types of Deposits Available in Capital Gain Account Scheme?

There are 2 types of deposits that individuals can avail of under the Capital Gain Account Scheme, 1988 -

• Type A - Type A, also known as a savings account, pays you an interest similar to that of a savings account. The Capital Gain Account Scheme interest rate is also similar to a savings bank account. Also, it is liquid in nature, making it easy to withdraw it at any time.
• Type B - The type B accounts under the Capital Gain Accounts Scheme are very similar to a fixed deposit or a term deposit. This type of account can be held for a maximum of 3 years. Also, the Capital Gain Account Scheme interest rates are similar to that of an FD.

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What are the Tax Implications of CGAS?

While depositors can claim exemption of the capital gains under this scheme, there are a few other tax implications.

• According to the Income Tax Act of 1961, depositors are required to submit proof of capital gains at the time of filing their ITR. Income Tax Returns do not allow you to annex any document. Therefore, you must keep the proof handy for later.
• Any interest earned on Type A as well as Type B accounts is chargeable to tax. TDS is deducted, and a certificate is issued to the depositor.
• If the amount withdrawn is underutilized after 60 days of withdrawal or after the given time limit, it is chargeable to tax.

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Capital Gains Account Scheme Withdrawal

The Capital Gain Account Scheme, 1988, has provisions for both Type A (Savings Account) and Type B (Deposit Account) accounts, with specific rules regarding withdrawals:

Type A – Savings Account:

• No Restrictions on Withdrawal: Taxpayers can withdraw any amount from the Type A – Savings Account without any restrictions.
• Utilization: Any amount withdrawn must be utilized for specified investments within 60 days of withdrawal.
• Re-deposit: Any unutilized amount must be re-deposited into Type A immediately to continue benefiting from the scheme.
• Forms for Withdrawal: Form C is submitted for the first withdrawal, and Form D is submitted for any subsequent withdrawals. These forms require details of the manner of utilization of the previously withdrawn amounts.

Type B – Deposit Account:

• Premature Withdrawal: While premature withdrawal is allowed, it must first be transferred to a Type A account.
• Penalty: There may be a consequential penalty for premature withdrawal from Type B accounts.
• Utilization Requirement: Like Type A, any withdrawn amount must be utilized for specified investments within 60 days of withdrawal.

Key Restrictions:

• No Chequebook or Debit Card is issued for either account type. Withdrawals and re-deposits are strictly managed through Form submissions (Form C and Form D).

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