Capital Gains Account Scheme (CGAS)

What is the Capital Gains Account Scheme & Its Types?

Understand CGAS, LTCG tax rates, indexation rules and smart ways to save capital gains tax legally

Written by : Knowledge Center Team

2026-01-08

4127 Views

7 minutes read

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Imagine you built a house in your native town, at the age of 30 (say, in the year 2007), by investing approximately ₹15 Lakhs. Now, at 45, you are considering selling the property to upgrade to a bigger and better place. Your property now commands a market price of around ₹1.5 Crore, given the rising demand for the property following a spurt in corporate investment in the city. Industrial growth led to job creation and increased migration across the region.

Selling such a long-held property can be financially rewarding. However, the profit on sale is treated as capital gains under the Income-tax Act, 1961, and may be subject to tax.

Key Takeaways

  • LTCG on property is generally taxed at 12.5% (without indexation) for transfers made on or after 23 July 2024, with limited indexation options available for eligible cases

  • The Capital Gains Accounts Scheme (CGAS) allows taxpayers to park unutilised gains before the Section 139(1) due date to preserve exemption benefits

  • Sections 54 and 54F provide LTCG exemptions, but they apply in different situations and have distinct reinvestment conditions

  • Section 54EC bonds offer another tax-saving route, with a ₹50 lakh annual investment cap and a five-year lock-in period

  • Timely reinvestment or deposit of capital gains is crucial to reduce tax liability and avoid losing exemption eligibility

Understanding Long-Term Capital Gains (LTCG) on Property

When you sell your property at a higher price, the profit earned is treated as capital gains and may be taxable under the Income Tax Act, 1961. If the property is held for more than 24 months (in the case of immovable property), the gains are classified as Long-Term Capital Gains (LTCG). For listed securities, the holding period is more than 12 months, while for certain other assets, it is more than 36 months, depending on the asset type. 

Under current tax provisions, LTCG is generally taxed at 12.5% without indexation for transfers made on or after 23 July 2024. However, resident individuals and HUFs selling land or buildings acquired before 23 July 2024 may opt to pay tax at 20% with indexation or 12.5% without indexation, whichever is lower, subject to prescribed conditions. 

LTCG can significantly increase your tax outflow for the financial year. This is where proper tax planning becomes important, especially if you intend to reinvest the gains to claim exemptions under the Income Tax Act.

One such provision that enables taxpayers to preserve their eligibility for capital gains tax exemption is the Capital Gains Accounts Scheme (CGAS scheme).

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What is the Capital Gains Account Scheme (CGAS)?

A capital gains account can be opened with an authorised bank notified under the Capital Gains Accounts Scheme, 1988, to offer such a facility. A capital gains account can be used to park unutilised funds received from the sale of a capital asset to claim exemption from LTCGT.

Which Capital Gains Can Be Deposited in a Capital Gains Account?

Gains made by selling/transferring immovable or financial assets can be deposited in the capital gains account if the taxpayer intends to claim exemption under specified sections of the Income Tax Act. However, they have not yet utilised the gains for the prescribed purpose before the due date under Section 139(1). The different categories and relevant sections of the Income Tax Act are tabulated below:

Section

Taxpayer

Capital Gain On

54

Individual or HUF

Sale of a residential house

54B

Individual or HUF

Sale of agricultural land

54D

Any assessee

Acquisition of building and land

54EE

Any

Transfer of any long-term capital asset or investment in specified assets

54F

Individual or HUF

Sale of a long-term capital asset that is not a residential property

54G

Any

Transfer of capital assets in case of the shifting of an industrial undertaking

54GA

Any

Transfer of capital assets to a Special Economic Zone (SEZ)

54GB

Any

Transfer of residential property

54EC

Any

Transfer of land or

building or both, and investment in specified bonds

Types of Capital Gains Accounts

You can deposityour capital gains under the Capital Gains Accounts Scheme using two types of accounts:

  • Type A: Savings Deposit

  • Term B: Term Deposit

A capital gains savings account (Account A) functions very similarly to a regular savings account and generally attracts a similar rate of interest as well.

A term deposit (Account B) account is similar to a fixed deposit offered by banks. The terms and conditions for premature withdrawal, interest rates, conversion between Account A and Account B, nomination, and related items remain unchanged.

Who Can Invest in a Capital Gains Account?

If you are a taxpayer and have made capital gains by selling an asset under sections 54, 54B, 54D, 54EE, 54GB, 54EC, 54G, 54GA or 54F of the Indian Income Tax Act 1961, you are eligible to open a capital gains account. Reinvesting capital gains within the specified time limit is essential to avoid LTCG Tax.

However, in case you think you will not be able to reinvest within the stipulated time frame, you can deposit the capital gains or the unutilised amount into the capital gains account. However, you must do this before filing your income tax returns and should not do so after the due date for filing income tax returns.

How is LTCG Calculated?

Long-term capital gain = Final Sale Price – (indexed cost of acquisition + indexed cost of improvement + cost of transfer)

Note: For transfers made on or after 23 July 2024, the indexation benefit is generally not available. However, for land or buildings acquired before 23 July 2024, a resident individual or HUF may opt to compute tax at 20% with indexation or 12.5% without indexation, whichever is lower, subject to prescribed conditions.

Where indexation is applicable, the calculation is as follows:

  • Indexed cost of improvement = cost of improvement x cost inflation index of the year of transfer/cost inflation index of the year of improvement.
  • Indexed cost of improvement: Cost of improvement × Cost inflation index of the year of transfer of capital asset/Cost inflation index of the year of improvement
  • (The Cost Inflation Index is notified annually by the Income Tax Department)

Illustrative example (where indexation is opted and applicable):

  • If Cost Inflation Index, CII = Index for financial year 2021-2022/Index for financial year 2007-2008 = 317 ÷ 129 = 2.46 (approx.)
  • Indexed cost of purchase = CII x Purchase Price
    = 2.46 × ₹15,00,000 = ₹36,90,000 (approx.)
  • Long-term capital gain = Selling price - Indexed cost
    = ₹1,50,00,000 - ₹36,90,000
  • = ₹1,13,10,000 (approx.)

Tax on capital gain (if opting for 12.5% without indexation) would be calculated on the unindexed gain. If opting for 20% with indexation (where eligible), tax would be 20% of the indexed gain, subject to conditions.

How to Save or Postpone Capital Gains Tax?

You can reduce your tax liability by investing the gains from the transaction in a residential property. If you have made capital gains from the sale of a residential house, you will claim an exemption under Section 54 if you invest in one residential property in India. If you gained from the sale of any asset other than a residential house, you must claim an exemption under section 54F when you invest the gains in a residential property.

There is another option: invest the capital gains while still saving on taxes. You can consider investing in capital gains bonds and claim an exemption under section 54EC. The bonds offered by Rural Electrification Corporation (REC) Limited and the National Highways Authority of India (NHAI). These bonds have a lock-in period of five years and allow investments up to ₹50 lakhs per financial year. In either case, you must invest within six months of the transfer of the asset, subject to the respective section’s conditions.

trivia-img

Did You Know?

Unutilised CGAS deposits become taxable as long-term capital gains in the year the investment period (2-3 years) expires


Source: CBDT

Cut Tax Stress 46,800

Tax Exemption: Section 54 Vs Section 54F

Both Section 54 and Section 54F provide relief from long-term capital gains tax, but they apply in different situations and come with distinct eligibility conditions and investment requirements.

Section 54

Section 54F

LTCG on the sale of a residential property

LTCG on the sale of an asset other than a residential property

Exemption is available to an Individual or HUF

Exemption is available to an Individual or HUF

Exemption is granted if the capital gain amount is invested in one residential house property in India, subject to conditions

Exemption is granted if the net consideration (sale proceeds) is invested in one residential house property in India, subject to conditions

-

The taxpayer should not own more than one house (other than the new house) on the date of transfer

Other Tax-Efficient Investment Options

Apart from the exemptions available under Sections 54, 54F, and 54EC, certain long-term investment options offer tax benefits under the Income-tax Act, 1961. However, these are not direct exemptions from capital gains tax unless the relevant section specifically applies.

  • Public Provident Fund (PPF): PPF investments can be deducted under Section 80C from taxable income, thereby reducing net taxable income. The maximum permissible investment in PPF is ₹1.5 lakhs, and that is also the upper limit of investments made under section 80C. There is no Tax Deduction at Source for PPF contributions, and withdrawals at permitted intervals are also tax-free. The interest accrued on PPF is not taxable.
  • National Pension Scheme (NPS): Investment of up to ₹50,000 in the NPS Tier 1 account is deductible, under section 80CCD (1B), from taxable income. Contributions to NPS also qualify for deduction under Section 80CCD(1), subject to the overall ceiling of ₹1.5 Lakhs under Section 80C. Therefore, a total a deduction of up to ₹2 lakh may be claimed (₹1.5 lakh under Section 80C/80CCD(1) + ₹50,000 under Section 80CCD(1B)).. Only up to 60% of the NPS corpus withdrawn at maturity is tax-exempt; the remaining 40% must be used to buy an annuity, and the annuity income is taxable as per the applicable income slab.
  • Unit Linked Insurance Plans (ULIPs): Financial planning is a two-phase strategy: wealth creation in the initial phase and wealth conservation later as you navigate life. A ULIP helps you do exactly that.
    1. The amount paid as premiums is deductible under Section 80C, subject to the overall ₹1.5 lakh limit
    2. Withdrawals from the plan after five years of holding are exempt under section 10(10D), provided the annual premium does not exceed ₹2.5 lakh for policies issued on or after 1 February 2021
    3. If the annual premium exceeds ₹2.5 lakh (for policies issued on or after 1 February 2021), the gains are taxable as capital gains
    4. ULIPs combine life insurance with market-linked investment options and may offer features such as fund switching and systematic withdrawal, depending on the policy terms
  • Life Insurance Savings Plans: Life is a journey with milestones that occur at regular intervals. You may need money at these milestones to achieve your life goals, such as buying a house or funding your child’s education. Long-term financial planning helps ensure funds are available when needed while optimising tax efficiency under the Income-tax Act, 1961.

Conclusion

Proceeds from the sale of property can result in substantial capital gains, which may attract significant tax liability. By understanding the applicable LTCG provisions and making timely investments  under Sections 54, 54F, or 54EC, they can preserve their exemption eligibility and reduce their overall tax burden. Depositing unutilised gains under the Capital Gains Accounts Scheme before the due date under Section 139(1) is also one of the smartest ways to align investments with long-term financial goals.

Glossary

  1. Capital Gains Accounts Scheme: A government scheme allowing taxpayers to park unutilised capital gains to claim exemption
  2. Long-Term Capital Gain: Profit earned on the sale of a capital asset held beyond the specified holding period
  3. Indexation: Inflation adjustment of purchase cost using the Cost Inflation Index to reduce taxable gains
  4. Cost Inflation Index: Government-notified index used to adjust asset cost for inflation in LTCG calculation
  5. Section 54F: Tax provision granting LTCG exemption when net sale proceeds are invested in a house
glossary-img
Uncertain About Insurance

FAQs

The CGAS full form in income tax is the Capital Gains Accounts Scheme. It is a government-notified scheme that allows taxpayers to deposit unutilised capital gains in authorised banks.

Capital Gains Accounts Scheme (CGAS) accounts can be opened with authorised Public Sector Banks. These accounts are typically available at urban and semi-urban branches, while rural branches (with a population below 10,000) are generally not designated to offer this facility.

The key capital gain account rules under the Capital Gains Accounts Scheme (CGAS) are:

  • Deposit before due date: The unutilised capital gains must be deposited on or before the due date of filing the return under Section 139(1)

  • Applicable sections only: Deposits are permitted only if an exemption is being claimed under Sections 54, 54B, 54D, 54F, 54G, 54GA, etc

  • Use within time limit: The deposited amount must be utilised within the prescribed period (generally 2 or 3 years, depending on the section)

  • Tax on unutilised amount: Any amount not utilised within the allowed period becomes taxable as long-term capital gains in the year the time limit expires

  • Withdrawal procedure: Withdrawals must follow the prescribed forms and conditions under the Capital Gains Accounts Scheme, 1988

The capital gain account interest rate is not fixed by the Income Tax Department. It depends on the type of account opened under the Capital Gains Accounts Scheme (CGAS) and the authorised bank where it is maintained.

  • For Account A (Savings Deposit), the interest rate is generally aligned with the bank's savings account rate 

  • For Account B (Term Deposit), the interest rate is aligned with the fixed deposit rates applicable for the chosen tenure

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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