Capital Gains Account Scheme (CGAS) India: Park Property Sale Proceeds for Section 54/54F Exemption
In short: The Capital Gains Account Scheme (CGAS) is a special bank account where you can park capital gains from property sale when you cannot immediately reinvest to claim Section 54/54F exemption. Without parking in CGAS by the ITR filing due date, the unused gain becomes taxable in the year of sale. CGAS lets you defer the tax until you actually reinvest (or until the prescribed reinvestment window expires). Open at any nationalised bank (SBI, PNB, BoB, Indian Bank, Canara, etc.). Two account types: Type A (savings, immediate withdrawal) and Type B (term deposit, slightly higher interest). Money withdrawn must be used only for the qualifying reinvestment – house purchase or construction.
Why CGAS Exists
Section 54, 54B, and 54F allow you to claim LTCG exemption if you reinvest property sale proceeds (or specific asset gains) into another residential house within a prescribed time:
Section 54: Sale of residential house, reinvest in another house. 2 years to buy or 3 years to construct.
Section 54F: Sale of any LTCG-eligible asset (other than house), reinvest in residential house. Same 2-3 year window.
Section 54B: Sale of agricultural land, reinvest in another agricultural land. 2 years.
Problem: ITR filing due date arrives well before the 2-3 year reinvestment window closes. If you have not yet reinvested by ITR filing, you cannot claim the exemption on declared LTCG. Solution: park the gain in CGAS by ITR due date; the exemption is allowed because you have committed the funds to reinvestment.
Two Account Types
Type A – Savings Account: Interest rate similar to regular savings account (3-4%). Allows immediate withdrawal for reinvestment. Best for those planning to reinvest soon.
Type B – Term Deposit: Interest rate similar to FDs (5-7%). Funds locked for a specified term but slightly higher returns. Best for those who know the reinvestment will happen later. You can transfer Type B to Type A when reinvestment time arrives.
How Much to Deposit
You must deposit at least the unutilised capital gain amount by the ITR filing due date for the AY in which the sale occurred. For Section 54F, the entire net consideration (not just gain) may need to be parked if you want full exemption.
Example: You sell a residential house in October 2026 for Rs 80 lakh, LTCG is Rs 20 lakh. ITR for AY 2027-28 is due 31 July 2027. By that date, if you have not yet bought/started construction of a new house, deposit Rs 20 lakh into CGAS to claim Section 54 exemption on the entire LTCG.
Opening a CGAS Account
Walk into any nationalised bank with: PAN, Aadhaar, proof of capital gain (sale deed copy + computation), KYC documents. Fill Form A (account opening) and Form B (designating type A or B). Deposit the gain amount via cheque or NEFT.
Most major banks – SBI, PNB, Canara, Indian Bank, BoB, Union Bank, Bank of India – offer CGAS. Private banks (HDFC, ICICI, Axis) typically do not.
Withdrawal Rules
Withdrawals are strictly purpose-bound. You can withdraw only for the qualifying reinvestment – to make payment for the new property/asset. The bank requires evidence of the intended use (sale agreement, allotment letter, builder demand letter).
Each withdrawal needs Form C (application stating purpose) and supporting documentation. Bank processes withdrawal within 7-15 days typically.
What If You Do Not Reinvest in Time
If the 2-3 year reinvestment window expires without you using the CGAS funds for the qualifying reinvestment, the unused portion becomes taxable as LTCG in the year the window expires. Tax rate: 20% (with indexation, for old units) or 12.5% (without indexation, for new units post April 2023) – per current rates after Budget 2024.
The CGAS-held funds can also be withdrawn at this point for any purpose – no longer purpose-bound after window expiry.
Reporting in ITR
In the year of sale, in Schedule CG of ITR-2 or ITR-3, declare the capital gain and indicate that the amount has been parked in CGAS. Bank certificate (showing deposit amount and account number) should be retained for verification.
In the year of reinvestment, no fresh action needed – the exemption claimed earlier stands. In the year the window expires (if unused), declare the unutilised amount as LTCG of that year in Schedule CG.
Worked Example
Sale of residential house: October 2026, sale price Rs 1 crore, LTCG Rs 30 lakh after indexation. You plan to construct a new house but have not yet started.
July 2027 (ITR due date): Deposit Rs 30 lakh in CGAS Type A or B. Claim Section 54 exemption on full Rs 30 lakh LTCG in ITR for AY 2027-28. Tax on capital gain: Zero.
2027-2029 (construction period): Withdraw funds from CGAS as construction progresses. Submit Form C with each withdrawal.
October 2029 (3-year window): If construction is complete and full Rs 30 lakh used, exemption stands. If only Rs 25 lakh used and Rs 5 lakh remains in CGAS, the Rs 5 lakh becomes taxable as LTCG in FY 2029-30 at 12.5% = Rs 62,500 tax due.
Common Mistakes
Mistake 1: Missing the deposit deadline. Funds must be in CGAS before ITR due date, not after. Late deposit invalidates exemption.
Mistake 2: Withdrawing for non-qualifying purpose. Bank may flag and report to IT Department.
Mistake 3: Forgetting to declare CGAS in ITR. The IT Department gets bank reports separately; mismatch triggers notices.
Mistake 4: Believing CGAS is also available for stock/equity LTCG. It is not – only Section 54/54B/54F (property/agricultural land) qualifies.
FAQs
Can NRIs open CGAS accounts?
Generally yes – NRIs selling Indian property can park gains in CGAS at a nationalised bank.
Is the interest on CGAS deposit taxable?
Yes – the interest earned is taxable as Income from Other Sources, same as regular savings or FD interest.
Can I close the CGAS account before window expires?
Only with the consent of the Assessing Officer (AO). The bank will require an AO approval letter for premature closure.
What documents does the bank need for opening CGAS?
PAN, Aadhaar, sale deed of property sold, capital gain computation, KYC documents. Some banks also require Form A signed by the assessee.
Sources
- Income Tax Act, Section 54, 54B, 54F
- Capital Gains Account Scheme, 1988
- Income Tax Rules – Rule 8 of CGAS Rules