- The Capital Gains Account Scheme (CGAS) lets you defer LTCG tax by depositing gains in a special account.
- The Finance Act 2024 introduces a lower LTCG tax rate of 12.5%, raising questions about which rate applies to unused CGAS funds.
- Unused or early withdrawn CGAS funds are taxed based on when the exemption is withdrawn, with specific rules about approval and deadlines.
Knowing the Capital Gains Account Scheme LTCG tax details for FY 2024-25 is important if you want to manage your capital gains tax well. With recent changes including a new 12.5% LTCG tax rate replacing the older 20% rate, you should understand how CGAS works, the timelines for reinvestment, and the tax effects if you don’t use the funds on time. This article explains everything about CGAS, the rules for depositing and using funds, and the key tax rate changes made in the Finance Act 2024.
Understanding the Capital Gains Account Scheme (CGAS)
The Capital Gains Account Scheme is made to help taxpayers who claim exemption from long-term capital gains tax by offering a safe bank option to deposit capital gains proceeds when you can’t immediately reinvest. When you sell a long-term asset like property or land, reinvesting within set timelines in specified assets is required to claim exemption on LTCG tax. CGAS lets you keep the gains in a special account while you arrange for reinvestment.
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How CGAS Helps You Manage LTCG Tax
CGAS helps by keeping your tax exemption valid until you invest in eligible assets such as residential property or agricultural land, as explained in sections 54, 54B, 54D, 54F, and 54G of the Income Tax Act. By depositing your gains in CGAS before filing your Income Tax Return, you keep your exemption safe even if you miss the immediate reinvestment deadlines, giving you more time to make the investment. Without CGAS, those gains would be taxable right away.
Rules for Depositing and Using Funds in CGAS
You can open a CGAS account at an authorized bank if you are an Indian resident; non-residents can use the Non-Resident Capital Gains Account Scheme (NRCGAS) instead. You can deposit money by cheque, demand draft, or online banking, either all at once or in parts. But the funds must be used within the set time, which usually matches the reinvestment deadlines — typically within two or three years from the date of sale or by the ITR filing deadline for the financial year when the asset was sold.
Tax Effects of Unused or Early Withdrawn CGAS Funds
If you don’t invest the deposited funds within the required period, that money becomes taxable as long-term capital gains in the year the deadline ends. Also, if you want to withdraw funds early, you’ll need prior permission from the income tax authorities, who will only approve it after making sure you pay the due tax. Keep in mind, the tax arises not because you sold a new asset, but because the exemption you claimed earlier is now withdrawn.
New 12.5% LTCG Tax Rate versus Old 20% Rate
The Finance (No. 2) Act, 2024 introduced a lower LTCG tax rate of 12.5% for capital assets transferred on or after July 23, 2024, replacing the earlier 20% rate. This change has created a question for taxpayers with unused CGAS funds deposited before the new rate’s start date but whose exemption withdrawal deadline passed after July 23, 2024.
Scenario Analysis: Which Tax Rate Applies on CGAS Withdrawals After the Amendment?
Suppose you sold property on August 1, 2021, and put LTCG into CGAS but didn’t reinvest before the deadline in August 2024 — which is after the new 12.5% rate began. The question is whether tax should be charged at 20% (rate at original sale) or 12.5% (rate when the gain is taxable due to non-use).
The current understanding is that tax should be calculated based on the financial year the exemption is withdrawn — meaning the new 12.5% rate applies if the deadline passes after July 23, 2024. So, the tax rate depends on when the gains become taxable, not when you originally sold the asset. It’s best to check with official sources or guidelines to see how this applies to your case.
| Aspect | Details |
|---|---|
| Scheme Name | Capital Gains Account Scheme (CGAS) |
| Who Can Use It | Indian Residents & Non-Residents (NRCGAS) |
| How to Deposit | Cheque, Demand Draft, Net Banking |
| Reinvestment Deadline | Within 2-3 years from transfer or by ITR filing deadline |
| New LTCG Tax Rate | 12.5% (For transfers after July 23, 2024) |
| Old LTCG Tax Rate | 20% (For transfers before July 23, 2024) |
| Approval for Early Withdrawal | Needed from Income Tax Authority |
| Official Website | incometaxindia.gov.in |
Keep checking the latest FAQs and circulars on the Income Tax Department’s official website to avoid surprises. Using CGAS properly can help you save tax legally, but make sure to reinvest on time or fully understand the tax rules if you have to withdraw funds under FY 2024-25 regulations.