Capital Gains Account Scheme
Also written CAGS · Capital Gains Account Scheme (CAGS) · CGAS · Capital Gain Account Scheme
A deposit scheme letting a taxpayer claim a capital gains exemption (Sections 54, 54B, 54D, 54F, 54G) even if reinvestment is not done before the tax return is due, by parking the unused gain in a designated account.
In plain language
Several sections of the Income Tax Act exempt a capital gain if the money is reinvested in a new asset — a house under Section 54, agricultural land under Section 54B, and so on. But reinvestment takes time, and a tax return is due long before the reinvestment deadline arrives.
The Capital Gains Account Scheme bridges that gap. If the gain, or the sale proceeds, cannot be reinvested by the time the return is filed, the taxpayer deposits the unutilised amount in a designated account under this scheme instead. The exemption is allowed as if the reinvestment had already happened. The money must then actually be used for the specified new asset within the section's own time limit — withdrawn from the CGAS account when the purchase or construction happens.
How it works
The workbook's summary table of capital gains exemptions marks, section by section, whether the Capital Gains Account Scheme is applicable:
| Section | Reinvestment required in | CGAS applicable? |
|---|---|---|
| 54 | Residential house | Yes |
| 54B | Agricultural land | Yes |
| 54D | Land/building for a new industrial undertaking (compulsory acquisition) | Yes |
| 54EC | Bonds of NHAI/REC | No |
| 54EE | Units of a notified fund | No |
| 54F | One residential house (from any capital asset) | Yes |
| 54G | Assets/establishment in a non-urban area | Yes |
| 54GA | Assets/establishment in an SEZ | Yes |
| 54GB | Equity shares of an eligible start-up | Yes |
| 115F (NRI) | Shares/deposits of an Indian company | No |
The pattern is not random: the CGAS route is available for exemptions where the new asset is bought or constructed — a house, land, an industrial undertaking, start-up shares — which realistically cannot always be completed before the return is due. It is not available for Sections 54EC, 54EE and 115F, where the reinvestment is simply buying a specified financial instrument (bonds, a notified fund, or listed securities) — something that can be done quickly, so there is no need for a parking account.
A worked example
Mr Nair sells a house in June 2024 for a long-term capital gain of Rs 1,20,00,000, under Section 54. He plans to buy a new house, but by the time his tax return is due (31 July 2025), he has identified a property but not yet completed the purchase.
He deposits the unutilised Rs 1,20,00,000 in a Capital Gains Account Scheme account with a bank before the return due date, and claims the full Section 54 exemption in that year's return.
Eighteen months later he completes the purchase — well within Section 54's window of 1 year before to 2 years after the transfer — for Rs 1,10,00,000, withdrawing that amount from the CGAS account. The exemption stands. Had he instead let the deadline under Section 54 pass without buying a house and without depositing the unutilised amount into a CGAS account before filing his return, the exemption would have been denied and the full Rs 1,20,00,000 gain taxed.
Compare this with a taxpayer who instead invests Rs 50,00,000 in NHAI bonds under Section 54EC: there is no CGAS route available for that section at all — the investment in the bonds has to be made directly, within six months, with no parking-account bridge.
Why NISM asks about it
Chapter 8 (Capital Gains), section 8.5.3 — Exemption for capital gains — Table 8.5, lists the Capital Gains Account Scheme column against each exemption section. Expect a question asking which sections allow the CGAS route and which do not, and why Section 54EC does not need one.
Common exam traps
- CGAS is available for Sections 54, 54B, 54D, 54F, 54G, 54GA and 54GB — not for 54EC, 54EE or 115F.
- The deposit must be made before the return filing due date, not before the section's full reinvestment deadline.
- CGAS defers the reinvestment, it does not extend the deadline — the money must still be used within the time limit each section allows, or the exemption is withdrawn and the gain becomes taxable in the year the time limit expires.
- The scheme is a bridge, not a substitute for actually buying the specified new asset.
Where this is taught
Free preparation for NISM Series X-BRelated terms
- Capital asset (Section 2(14))Section 2(14)'s wide definition of what can generate a capital gain — property of any kind held by an assessee — narrowed by exclusions for stock-in-trade, personal effects and rural agricultural land.
- Cost of acquisitionWhat an assessee is treated as having paid for a capital asset — usually the price actually paid, but overridden by special rules for bonus shares, ESOPs, gifts and inherited assets.
- Section 87A rebateA tax rebate for resident individuals with total income below a threshold — up to Rs 12,500 (old regime, Rs 5 lakh), and under the new regime up to Rs 25,000 (Rs 7 lakh) or Rs 60,000 (Rs 12 lakh from FY 2025-26).
- Cost Inflation IndexAn index notified by the CBDT each year, with 2001-02 as the base of 100, used to restate the cost of a long-term capital asset in current rupees so that inflation is not taxed as capital gain.