Capital Gains Account Scheme (CGAS): How Does It Work And When Is It Used?
CGAS simplifies managing and deferring your capital gains tax through designated deposits.
CGAS simplifies managing and deferring your capital gains tax through designated deposits.
Capital Gains Account Scheme
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The Capital Gains Account Scheme (CGAS), introduced in 1988 under the Income Tax Act of 1961, is a provision designed by the government to help taxpayers manage their capital gains tax liability. It allows individuals to deposit the proceeds from the sale of capital assets into designated accounts at authorised public sector banks. This scheme is particularly useful for those unable to reinvest the capital gains into new assets immediately.
Also Read: Direct Tax Laws To Be Simplified: Here Are Key Things To Know
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The following conditions must be met to deposit capital gains into a Capital Gains Account Scheme (CGAS) account:
1. Capital Gains Source: The taxpayer must have capital gains from the sale or transfer of assets specified under sections 54 to 54GB of the Income Tax Act, 1961. These sections include various types of assets and conditions under which capital gains exemptions can be claimed.
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2. Residency Requirement: The CGAS scheme is available only to Indian residents. Non-residents are required to open a non-resident Capital Gains Account Scheme (NRCGAS) if they wish to utilise similar provisions.
3. Proof of Capital Gains: The depositor must provide proof of capital gains from the sale of the specified assets. This documentation is necessary to validate the source of the funds being deposited into the CGAS account.
Type A – A savings deposit similar to a regular savings bank account. It earns interest at the same rate as standard savings accounts, and a passbook is provided to track transactions. This account offers high liquidity, meaning you can withdraw funds at any time.
Type B – A term deposit similar to a fixed deposit (FD) scheme offered by banks. It accrues interest at a rate comparable to standard FD schemes, and the terms regarding early withdrawal are also similar. If you withdraw funds before the tenure ends, you may incur a penalty for premature withdrawal, just as with a regular FD.
1. Complete the Application: Submit an application using Form A.
2. Submit Documents: Provide the following documents: PAN card, proof of address and photograph.
3. Make Deposits: Deposits can be made using cash, cheque, demand draft, or other accepted methods. For cheques and demand drafts, the deposit date is recorded as the date the instrument is received at the deposit office, pending clearance.
4. Deposit Options: You can deposit funds in a lump sum or instalments.
5. Separate Applications: If you need exemptions under different sections, submit separate applications and open separate accounts for each section.
There are no limits on withdrawals from Type A savings accounts. While early withdrawal from a Type B account is permitted, it must be done after moving the funds to a Type A account, and there may be a corresponding penalty.
To withdraw money from the Capital Gains Account Scheme, you must submit Form C. The funds must be utilised for specific investments within 60 days after withdrawal. The money cannot be redeposited immediately. Fill out Form D to apply for a second withdrawal.
The interest earned on deposits in a CGAS account is taxable in the year it accrues, regardless of whether the funds are withdrawn. Recently, the tax rate for long-term capital gains on most assets has been rationalised to 12.5 per cent without indexation, down from the previous rate of 20 per cent with indexation (Section 112). This change aims to simplify the taxation process and facilitate easier computation of capital gains.
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Today is the last date of filing your ITR for AY24-25. Failure or a delay could attract a penalty. Taxpayers can avoid this by timely filing their returns today after matching the details with the information available on the AIS
Income sources dealt with under Section 56 of the Income Tax Act include dividends, one-time payments, advance payments, severance packages, and revenue from renting machinery.
Money received from children who are non-resident Indians (NRI) is not taxable, but it may raise questions by the income tax department for the remitter
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