CGAS explained for property sellers: Latest changes and how they reduce your tax

The Capital Gains Accounts Scheme (CGAS), which allows taxpayers to deposit their unutilised capital gains in a separate account, thereby enabling them to save taxes, has just got a makeover. The Ministry of Finance has notified the Capital Gains Accounts (Second Amendment Scheme) on November 19, bringing changes in CGAS that will be beneficial to taxpayers.

These include expansion in the list of banks to include the private sector that will offer CGAS accounts, acceptance of electronic mode of payments, including UPI (Unified Payments Interface) and online closure of CGAS accounts from April 1, 2027.

CGAS is especially beneficial for sellers of property as they can deposit their unutilised capital gains for up to three years while availing tax exemption under Section 54 of the IT Act. Here is a guide on CGAS, the recent changes and what it means for taxpayers.

What is CGAS, and how does it help save capital gains tax?

The scheme facilitates investments and helps save capital gains tax arising out of the sale of a residential house, flat, equity shares, farmhouse and agricultural land, among others. If you have sold property after holding it for more than two years, you are liable to pay long-term capital gains (LTCG) tax of 20% with an indexation benefit. The IT Act, however, allows exemptions if you buy another property or a capital asset. Under Section 54 of the IT Act, you can claim exemption if you purchase another house within two years or construct a new one within three years from the date of sale.

But if you are not in a position to do so at the time of filing your annual IT Return (ITR), you can park the proceeds in a capital gains account with a bank and claim exemption. This facility can be availed by all assesses who are eligible for exemption under section 54, 54B (sale of agricultural land), 54D (compulsory acquisition of land or building that forms part of an industrial undertaking), 54F (sale of assets such as gold or shares) [54G (transfer of capital assets such as plant and machinery or 54GB (exemption for HUF (Hindu Undivided Family) from sale of long-term residential property] of the IT Act.

How does CGAS operate?

You can make a deposit either through a savings account or a term deposit (Type A Account and Type B Account in banking parlance). All eligible persons who are looking to invest to save capital gains tax can open the account. But if a customer wants to keep her/his entire money only in a Type B Account (Term Deposit), they should open a Type A Account as well, as all transactions are routed only through savings accounts. While term deposits under CGAS earn an interest that is equivalent to a fixed deposit (FD) in the bank, funds parked in the savings account will get the same rate as regular bank accounts.

If you intend to claim exemption (duly declared in a form submitted to the bank) for capital gains, you can hold the deposit for only 2-3 years. The timeframe depends on the type of asset sold. Some banks do not operate CGAS in rural areas. You have to deposit a minimum of ₹1000 to open an account under CGAS, and there is no upper ceiling for maximum balance/amount.

“The deposit made under account-A shall be in the form of ‘savings deposit’ and subject to the other provisions of this scheme, withdrawals under this account can be made from time to time by the depositor. The deposit made under account-B shall be in the form of ‘term deposit’ with an option to the depositor to keep the deposit as a cumulative or non-cumulative deposit,” CBDT (Central Board of Direct Taxes) said in its notification on CGAS.

What are the limitations?

You cannot avail any loan against this deposit. The term deposit will not be accepted as margin money or as collateral for availing fund-based facilities. At the time of closure, the depositor will have to produce a letter/certificate from the IT Officer of her/his jurisdiction. The closure will be allowed only based on the terms mentioned in the letter/certificate.

Unlike regular bank FDs, an auto-renewal facility is not available for these deposits. Upon maturity, the proceeds will be directly credited to the savings account (Type A account). You have to pay charges for premature withdrawal of the term deposit. After withdrawing the funds, the taxpayer must invest it in the specified asset within 60 days. She/he has to deposit any remaining unused funds back into the savings account.

What are the new facilities under CGAS?

The amended scheme recognises electronic mode for accepting deposits, permitting transactions through debit and credit cards, net banking, IMPS (Immediate Payment System), UPI, RTGS (Real Time Gross Settlement), NEFT (National Electronic Funds Transfer) and BHIM Aadhaar Pay.

The deposit office under the amended CGAS is no longer restricted to public sector banks and IDBI Bank. Deposits under CGAS are now accepted by 19 private sector banks, apart from the existing public sector banks and IDBI.

The government has also allowed electronic statements of accounts to be treated at par with traditional passbooks, simplifying the verification and documentation process. Deposits made through the electronic mode will be considered effective from the date they are received by the deposit office.

Further, taxpayers can close their CGAS accounts only through electronic filing authenticated by a digital signature certificate or an electronic verification code from April 1, 2027. The amended scheme also allows exemption for unutilised capital gains arising from shifting an industrial undertaking from an urban area to an SEZ (Special Economic Zone).

Allirajan M is a journalist with over two decades of experience. He has worked with several leading media organisations in the country and has been writing on mutual funds for nearly 16 years.