Investing in properties is among the most preferred options across age groups in India. It is also common for holders of old or ancestral properties to sell their residence and use the proceeds to buy an apartment or a villa in gated communities. Many would also want to use the money to construct their own property. The sharp appreciation in real estate assets has given many the affordability to deploy the gains for moving to newer acquired residences.
However, on the operational front it is not always easy or feasible to find an avenue to reinvest the capital gains generated from sale of a property such as a residence or land. Sometimes, it could take years for full deployment of gains.
In order to avoid the paying capital gains tax on the sale proceeds, you are allowed to invest in the capital gains account scheme (CGAS) 1988, which is essentially a bank account to park your capital gains without attracting tax.
Recently, the IT department has issued a few new measures to the CGAS scheme including allowing private banks to open accounts, online closure and recognising other electronic payments.
Read on for more on the CGAS: types of accounts, withdrawal for specific purposes, forms involved, payment modes and closure procedure.
Widening the options
As mentioned earlier, CGAS involves opening a deposit for temporary parking of various capital gains under various section 54 heads. Only long-term capital gains are allowed to be parked in these deposits. A few section 54 heads are listed below.
Section 54 involves gains from sale of a residential house, while section 54B deals with profits from sale of agricultural land. Another section, 54F, deals with capital gains made from sale of non-residential capital assets such as gold and shares. Section 54D arises when a person is compelled to sell their land or building, usually to governments for infrastructure projects, development work and so on, resulting in capital gains. There are a few more heads under section 54 relating to investing capital gains in start-ups/SMEs and so forth.
CGAS was available only in public sector banks such as SBI, IDBI Bank, PNB, and the like, until now.
Recently, the tax department has also allowed 19 private sector banks to offer the CGAS deposit. The non-rural branches of HDFC Bank, ICICI Bank, Axis Bank, City union Bank, IDFC First Bank, Karnataka Bank, and IndusInd Bank among others are now allowed to offer the deposit account to customers.
Account types
There are two types of CGAS accounts that can be opened with banks. Aadhaar, PAN, address and identify proofs, along with photos may be needed to open the account. NRIs are also allowed to open the CGAS account. Nomination facility is also available.
Type A is a savings account where you can park the capital gains proceeds. This account will offer normal savings account interest the banks offers other customers.
You can withdraw from this account for the purpose of redeploying your capital gains, for example for periodic payments made to your builder for house construction.
Then there is the type B account, which is a fixed deposit. Deposits are available for a maximum period of three years. No extensions are possible. IT laws allow two years for deployment of capital gains proceeds for new house purchase and three years for own property construction.
The type B deposit account offers interest corresponding to similar tenors offered for regular deposits.
An amount must be moved from type B to type A before it is withdrawn. Premature withdrawals entail penalties on interest rates.
A form C is needed to make the first withdrawal. Subsequent withdrawals need filling of form D. You must state how the earlier withdrawals were utilised in subsequent withdrawals.
Earlier, cheques and demand drafts were the usual methods for making deposits into these accounts.
The tax department has expanded the ambit of payment methods to include UPI, NEFT, RTGS, IMPS, debit and credit cards, and net banking, making it convenient to make deposits into CGAS account.
All interest earned on these accounts is taxable at the income slab of the depositor.
If the capital gains amount deposited is not fully utilised within two years or three years as the case may be, the balance sum remaining in the account becomes taxable at the applicable rates.
The capital gains deposit must be opened before the return filing deadline for any year or before filing of your own returns, whichever is earlier.
Now, the income tax department has clarified that the effective deposit date would be the date the bank receives the electronic payment or instruction, along with the completed CGAS account opening form.
Easing closure process
Closing the CGAS is not as simple as regular bank account closure. It requires the clearance of your jurisdictional assessment officer (AO). This requires a physical visit to the AO’s office and submission of form G along with a request letter for closure of the account. After getting the approval, you can then request the bank to close the account.
While this is the procedure currently, procedures are set to change from April 1, 2027.
The CBDT has envisaged a new process that would entirely be online. The contours are not fully out, but it is expected that physical visits to AO’s office will not be required and an online authentication process would be rolled out to verify the form G submission (which itself would be online).
Published on November 29, 2025
