The Capital Gains Account Scheme (CGAS) is a special bank account created to help taxpayers temporarily park their capital gains profit until they are ready to invest in a new property.
Instead of immediately paying tax on capital gains, this scheme allows you to hold the funds safely while planning your real estate investment within the permitted timeline.
Here is a complete step-by-step guide explaining how the CGAS account works.
Step-by-Step Guide to Opening a CGAS Account
Step A: Choose the Right Bank
Not all banks are authorized to open CGAS accounts. You must visit:
- Public sector banks (such as SBI, PNB, Bank of Baroda, etc.)
- Authorized private banks like IDBI
The account must be opened through a bank branch.
Step B: Select the Account Type
There are two types of accounts available under the scheme. You can choose one or combine both depending on your needs.
Type A – Savings Account
- Suitable if you plan frequent withdrawals
- Useful for construction stages or installment-based property payments
- Functions like a regular savings account
Type C – Term Deposit Account
- Suitable for lump sum payments due later (such as possession payments)
- Works like a Fixed Deposit
- Offers higher interest earnings
Step C: Required Documentation
You must visit the bank branch personally and submit:
- Form A: Application form for opening a CGAS account
- PAN Card: Mandatory for capital gains transactions
- Address Proof and Photographs: Standard KYC documents
- Proof of Sale: Documents showing sale of shares and capital gains amount
Process and Important Rules
Making the Deposit
You can deposit funds through:
- Cash (up to ₹25,000)
- Cheque
- Demand Draft
After deposit:
- Type A accounts receive a passbook
- Type C accounts receive a deposit receipt
These details must be mentioned while filing your Income Tax Return (ITR).
Withdrawing the Money
To withdraw funds:
- Use Form C for the first withdrawal
- Use Form D for second or subsequent withdrawals, explaining how earlier funds were used
Important Rule:
Withdrawn money must be used for real estate investment within 60 days. It cannot simply be transferred back to a regular savings account.
Timelines for Reinvestment
To maintain tax exemption benefits, funds must be used within the following timelines:
- Purchase a house: Within 1 year before or 2 years after the sale of shares
- Construct a house: Within 3 years after the sale of shares
Taxes and Interest Rules
Interest Taxation
Interest earned on a CGAS account is taxable under “Income from Other Sources.”
Failure to Invest
If the deposited amount is not used for property investment within the 3-year period, the unused balance will be taxed as Long-Term Capital Gains in the year the three-year window expires.
Conclusion
The Capital Gains Account Scheme (CGAS) helps taxpayers legally defer capital gains tax while planning property investments. By depositing profits into this special account and following the prescribed timelines and rules, investors can maintain eligibility for tax exemptions while organizing their real estate purchases.