The Capital Gains Account Scheme (CGAS) is a temporary deposit facility for taxpayers who qualify for a specified capital-gains exemption but have not yet used the amount for the required reinvestment. Depositing the eligible unutilised amount by the statutory deadline can preserve its treatment as an amount available for the exemption; CGAS does not create an exemption by itself. The exemption section, asset sold, dates, amount measure and reinvestment deadline still control the result.
What the Capital Gains Account Scheme does
CGAS is a statutory bridge between the sale of an asset and the qualifying purchase or construction needed for a capital-gains exemption. It is relevant when a taxpayer has a qualifying gain or consideration but cannot complete the required reinvestment before the income-tax return-filing deadline.
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The Income Tax Department lists sections 54, 54B, 54D, 54F, 54G and 54GB as provisions for which CGAS may be used. Each provision has separate rules for the taxpayer, asset, amount, property or business use, and time allowed. A deposit therefore does not guarantee relief: it only puts the unspent amount into the prescribed route while the taxpayer completes the relevant reinvestment.
- CGAS is not an ordinary savings or fixed-deposit product chosen for its interest rate.
- The deposit must be made with an authorised deposit office under the Scheme; not every bank branch is necessarily authorised.
- The amount deposited must relate to the exemption being claimed and must be used for that exemption’s qualifying purpose.
- Any balance left unused after the applicable statutory period can become taxable.
Who can use CGAS and which exemption applies?
Start with the exemption section, not with the bank account. The Department’s list covers sections 54, 54B, 54D, 54F, 54G and 54GB, but the facts that make a taxpayer eligible differ across them. Sections 54 and 54F are the most common routes involving a residential house and illustrate why the amount and deadline must be identified precisely.
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| Provision | Asset and taxpayer described in the statutory route | Amount or reinvestment point relevant to CGAS |
|---|---|---|
| Section 54 | An individual or Hindu undivided family (HUF) with a long-term capital gain from a qualifying residential house. | The unappropriated or unutilised capital gain intended for purchase or construction of another qualifying residential house. |
| Section 54F | An individual or HUF with a long-term capital gain from a long-term asset other than a residential house. | The section addresses unappropriated net consideration and requires investment in one residential house in India; its qualifying base is not the same as section 54’s capital-gain amount. |
| Sections 54B, 54D, 54G and 54GB | Separate statutory situations involving specified assets, land, industrial undertakings or eligible companies and uses. | Use is governed by the conditions of the particular section. The Department lists these provisions as CGAS routes, but the asset, taxpayer and reinvestment tests must be checked individually. |
For section 54, the relevant figure is generally the capital gain being reinvested. For section 54F, the statutory calculation is tied to net consideration and the section’s formula and conditions. Do not transfer the section 54 amount test to a section 54F transaction.
How sections 54 and 54F differ
Section 54: sale of a qualifying residential house
Section 54 concerns an individual or HUF that has a long-term capital gain from a qualifying residential house and purchases or constructs another qualifying residential house. The statutory text provides that the part of the capital gain not appropriated toward the purchase within the permitted pre-transfer window, or not used before the return is furnished, must be deposited before furnishing the return. The deposit is then considered under the section’s cost and timing rules, subject to all other eligibility conditions.
Section 54F: sale of another long-term asset
Section 54F applies to an individual or HUF transferring a long-term asset other than a residential house and investing in one residential house in India. Its subsection (4) deals with net consideration that has not been appropriated or used by the return deadline. Because section 54F uses net consideration in its statutory mechanism, a taxpayer should calculate the required amount under section 54F rather than simply depositing the capital gain.
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The Department’s ₹10 crore limits
The Income Tax Department states that, from assessment year 2024–25, a CGAS deposit exceeding ₹10 crore is not counted for computing the section 54 exemption. For section 54F, net consideration exceeding ₹10 crore is not counted for that exemption. These are Department-stated limits for those sections; they are not a universal cap applying to every CGAS provision or every deposit.
When must the deposit be made?
For sections 54 and 54F, the key deadline is before the income-tax return is furnished and, in any event, no later than the due date under section 139(1). A deposit made after that statutory cut-off should not be treated as automatically protected merely because the reinvestment period has not expired.
- Identify the date on which the original asset was transferred.
- Determine the exemption section that actually fits the asset and taxpayer.
- Calculate the amount already appropriated or used for the qualifying purchase or construction.
- Calculate the section-specific unutilised amount that remains eligible for deposit.
- Confirm the section 139(1) return due date for the relevant assessment year.
- Deposit the eligible amount with an authorised CGAS deposit office before filing the return and no later than that due date.
- Keep the deposit receipt, account details and return computation with the transaction records.
The due date is not a generic calendar date. It depends on the assessment year and the taxpayer’s filing circumstances, so verify the applicable section 139(1) deadline before acting.
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Account-A and Account-B: what the Scheme distinguishes
The Scheme provides for Account-A and Account-B. Account-A is the account for which the official Form C is titled “Application for withdrawal of amount from account-A under the Capital Gains Accounts Scheme, 1988.” The materials reviewed do not establish complete current operating rules for every Account-B conversion, premature-withdrawal situation or post-withdrawal evidence requirement. Those details should be confirmed in the current Scheme and with the selected authorised bank.
Account-A withdrawal through Form C
Form C requires the depositor to identify the amount requested, the relevant exemption section and the intended purpose. It supports payment in cash for a stated purpose or payment to a named party by pay order or demand draft, as indicated on the form and subject to the bank’s current process.
This is why a CGAS withdrawal is not best understood as unrestricted spending. The withdrawal should fund the purchase, construction or other qualifying use that supports the exemption. A bank may require its own documentation or controls in addition to the statutory form, so ask the branch for the current checklist before submitting a withdrawal request.
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Practical withdrawal sequence
- Confirm that the proposed spending is permitted by the exemption section used for the deposit.
- Obtain the current Form C and the authorised branch’s instructions.
- State the section, amount and specific purpose accurately on the form.
- Request payment in the permitted manner, including payment to the named seller or contractor where appropriate.
- Retain invoices, agreements, payment proofs and evidence of the resulting qualifying asset or use.
- Update the capital-gains computation and retain the bank statement showing the withdrawal and any remaining balance.
What happens if the CGAS amount is not used?
CGAS postpones the need to complete the qualifying investment; it does not remove the investment requirement. If an amount remains unused when the applicable section-specific period ends, the unused portion is treated under the tax rules for the year in which that period expires. The exact period depends on the exemption section and the transaction facts.
Do not assume a universal three-year deadline. Three years is an example associated with the section 54 route in the Department’s transition guidance, while other provisions and circumstances can have different purchase, construction or lock-in rules. The transfer date, section claimed and nature of the qualifying asset determine the relevant end date.
How the taxable year is identified
The Department’s transition FAQ gives this example: a transfer in June 2024, followed by a section 54 period expiring in June 2027, leaves the unused amount taxable in Tax Year 2027–28. The trigger and quantum are computed under the old section applicable to the deposit, even though the tax year in which the period ends falls under the newer Act.
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The 1 April 2026 transition
The Income-tax Act, 2025 does not automatically rewrite every earlier CGAS deposit. Deposits made under the Income-tax Act, 1961 before 1 April 2026 remain governed by the 1961 Act’s conditions, according to the Department’s transition FAQ. This matters when the reinvestment period or tax consequence occurs after that date.
| Situation | How to approach it |
|---|---|
| CGAS deposit made before 1 April 2026 under the 1961 Act | Apply the 1961 Act’s conditions to that deposit, including the relevant exemption section and unused-balance rule; do not apply the 2025 Act retroactively without checking the transition provision. |
| Transaction or deposit on or after 1 April 2026 | Check the current provision, tax-year terminology and transition rules in force for that transaction before calculating the deposit or exemption. |
| Older deposit whose reinvestment period ends after 1 April 2026 | Use the old section to determine the trigger and amount for the earlier deposit, then report the resulting taxable amount in the tax year in which the period expires. |
For a large transaction, a missed deadline or a balance near the end of its reinvestment period, obtain transaction-specific advice from a qualified Indian tax professional.
Common errors that can jeopardise the exemption
- Depositing after filing the return: For sections 54 and 54F, the deposit must be made before furnishing the return and by the section 139(1) due date.
- Using the wrong amount: Section 54 and section 54F do not use interchangeable bases; section 54F addresses net consideration.
- Treating CGAS as the exemption: Eligibility still depends on every condition in the selected section.
- Assuming any branch is authorised: Confirm the current authorised deposit office and branch-level account-opening procedure.
- Withdrawing for unrelated spending: Form C links an Account-A withdrawal to a stated section and purpose.
- Ignoring the unused balance: A remaining amount can become taxable when the applicable period expires.
- Applying a three-year rule universally: The period varies by section and facts.
- Overlooking the 2026 transition: A pre-1 April 2026 deposit remains subject to the 1961 Act’s conditions.
- Failing to preserve records: Keep the return, computation, deposit certificate, Form C, bank statements and proof of qualifying purchase or construction.
A transaction-by-transaction checklist
Use this checklist before depositing, withdrawing or filing the return:
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- What asset was sold, and was the gain long-term under the applicable rule?
- Was the asset a qualifying residential house, or another type of long-term asset?
- Which section—54, 54B, 54D, 54F, 54G or 54GB—is being claimed?
- Is the taxpayer an eligible individual, HUF, company or other person for that section?
- What amount does the section measure: capital gain, net consideration or another statutory amount?
- How much was already used for the qualifying purchase, construction or specified use?
- What is the section 139(1) due date for the relevant assessment year?
- Was the deposit made before filing the return and no later than that due date?
- Was the deposit made at a currently authorised CGAS office?
- Was the deposit made before or after 1 April 2026?
- What is the final section-specific date for using the funds?
- Does each withdrawal correspond to the stated qualifying purpose, with supporting payment evidence?
- What balance, if any, will remain when the reinvestment period ends?
Bottom line for taxpayers
CGAS can protect the reinvestment treatment for an eligible, unspent amount when the deposit is made on time and the funds are later used exactly as the relevant exemption section requires. The decisive facts are the asset sold, exemption section, amount calculation, section 139(1) deadline, authorised deposit office, withdrawal purpose, final reinvestment date and— for older deposits—whether the deposit was made before 1 April 2026. A deposit alone is not a permanent exemption, and an unused balance can become taxable.
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