Important Keyword: Capital Gains, Capital Gains Account Scheme, Capital Gains Exemption.
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Capital Gains Account Scheme (CGAS)
The Indian tax system offers individuals several avenues, ranging from sections 54 to 54GB, to alleviate their capital gains tax burden. For those unable to reinvest their gains before the income tax return deadline, the Capital Gains Account Scheme Account emerges as a viable solution. Established by the Central Government in 1988, the Capital Gains Account Scheme empowers taxpayers to deposit their funds temporarily, granting them the flexibility to invest in specified avenues later on and claim the capital gains exemption.
What is the Capital Gains Accounts Scheme (CGAS)?
In the realm of capital gains taxation, taxpayers often encounter the challenge of meeting reinvestment deadlines that extend beyond their tax return filing due dates. To mitigate this issue, the government introduced the Capital Gain Account Scheme (CGAS) in 1988. This scheme offers taxpayers the flexibility to temporarily deposit their capital gains into a designated CGAS account until they reinvest the funds to claim exemptions under Sections 54 to 54GB.
Here are some key aspects of the CGAS account:
Transfer of Account:
- Taxpayers can transfer their Capital Gains Account Scheme account from one branch to another within the same bank.
- They can also switch between Type A and Type B accounts, although converting a Type B account to Type A before maturity is considered a premature withdrawal.
- Form B must be submitted for any account conversion.
Nomination:
- Form E is required to nominate an inheritor for the account in case of the depositor’s demise.
- Up to three nominees can be appointed, and any payouts will be in the order of their nomination.
- Accounts opened for minors, HUFs, AOPs, BOIs, or firms cannot be nominated, although a minor can be appointed as a nominee.
Loan:
- Securing a loan against the Capital Gains Account Scheme account is not permitted, and the deposit certificate cannot be used as collateral or guarantee.
Closure of Account:
- Permission from the jurisdictional income tax officer is required to close a CGAS account.
- Form G, along with the officer’s permission, must be submitted for account closure.
Eligible persons to deposit in Capital Gains Account Scheme
When taxpayers find themselves unable to meet the stipulated investment deadlines for their capital gains, they have the option to deposit the unutilized funds into a Capital Gains Account Scheme (CGAS) before the due date for filing their Income Tax Returns (ITR). This provision ensures that taxpayers can still avail themselves of the benefits of capital gain exemptions even if they cannot reinvest the funds within the prescribed timeframe.
By depositing the unutilized capital gains into a CGAS account, taxpayers can effectively defer the tax liability on those gains until they are ready to make the necessary investments to claim exemptions under the relevant sections of the Income Tax Act. This flexibility provides taxpayers with additional time and leeway to plan their investments and make informed decisions regarding their capital gains tax obligations.
Overall, the CGAS serves as a valuable tool for taxpayers who may face challenges in meeting investment deadlines, allowing them to manage their tax liabilities in a more efficient and strategic manner.
| 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 |
How to open a CGAS Account?
Opening a Capital Gains Account Scheme (CGAS) account to manage tax liabilities effectively involves several straightforward steps:
- Application Submission: Begin by completing Form A and submitting it along with required documents such as PAN, address proof, and a photograph.
- Deposit Funds: Deposit the funds into the CGAS account using cash, cheque, demand draft, or other acceptable methods, either as a lump sum or in installments.
- Separate Accounts for Exemptions: If seeking exemptions under different sections of the Income Tax Act, open separate CGAS accounts and submit separate applications for each.
Types of Deposits under CGAS:
- Type A – Savings Deposit: Functions similarly to a regular savings bank account, with interest credited at regular intervals and withdrawals permitted at any time.
- Type B – Term Deposit: Operates like a fixed deposit account, with interest credited regularly and a deposit certificate issued. However, there are restrictions on premature withdrawals, and penalties may apply.
Withdrawals from CGAS:
- Withdrawals from Type A accounts have no restrictions, while withdrawals from Type B accounts incur penalties for premature withdrawal. Forms C and D are used for withdrawals.
- After withdrawal, any unused funds must be reinvested within 60 days, with any remaining amount deposited back into the Savings Deposit account.
Tax Implications:
- Deposits in the CGAS account must be made before filing the Income Tax Return to claim capital gains exemptions. Proof of deposit should be retained for submission if required by the Income Tax Department.
- Interest earned on Type A or Type B accounts is taxable as income from other sources at slab rates. TDS may be deducted by the bank under Section 194A, and the taxpayer can claim credit while filing their return.
- If funds withdrawn from the CGAS account are not utilized within 60 days for specified investments to claim exemptions, the unutilized amount becomes taxable in the Income Tax Return.
Read More: Capital Gains on Sale of Property & Land
Web Stories: Capital Gains on Sale of Property & Land
Official Income Tax Return filing website: https://incometaxindia.gov.in/
