The capital gain account scheme (CGAS) was introduced by the government in 1988 to allow taxpayers to save capital gain tax if they deposit the proceeds within a certain period. It will enable taxpayers to park their gains until reinvested, as defined in the Income-tax Act 1961. As per the Act, “It applies to all assessees eligible for exemption under section 54, 54B, 54D, 54F,” So people can use this account to save capital gain tax in a financial year.

Capital Gain Account Scheme (CGAS):

This is used when a taxpayer has a capital gain during the financial year and is unable to reinvest this amount as per the prescriber rule. There are two types of capital gains account schemes, Type A and Type B, which are like savings deposits and term deposits, respectively.

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The Type A account is like a bank savings account, where interest is credited regularly. So, the money in this account can be used anytime for any purpose. The Type B account is like a term deposit account but offers a higher interest rate and is not as liquid as a savings account. The maximum term is three years. Like FDs, the depositor decides the term at the time of opening the account, so it can be two years or three years.

However, the account cannot be renewed as it is in the case of other bank FDs. The proceeds can be invested with a cumulative or non-cumulative option, where interest is reinvested in the account or paid at specific intervals. Investors can choose a suitable option.

When One Would Need This Account:

If the amount is not reinvested within the stipulated time, a capital gains savings account can be used to park the money for the time being, and that amount will be qualified for tax exemption.

Withdrawal From The Account:

The taxpayers can make a premature withdrawal from the account, and it should be utilised within 60 days or invested back in the account if it is not used. One can withdraw the amount from a Type A account, and if it is in a Type B account, the fund has to be transferred first from Type B to Type A, and then withdrawal can be made. State Bank of India, Union Bank of India, Bank of Baroda, Bank of India, and Indian Bank are some authorised banks where the account can be opened.

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How To Withdraw:

To withdraw the fund for the first time, one needs to submit Form C, and for further withdrawals, Form D is required, where the details of the money used need to be provided. If a taxpayer wants

to close the account, they must submit an application on Form G with the approval of the assessing officer of the depositor’s jurisdiction. Then, the deposit office will credit the amount and interest to the relevant bank account.

As this account is only to park your money, use it accordingly and invest it in the prescribed avenues to save tax permanently. Also, until the money is deposited into CGAS, the interest amount from both accounts is taxable.