Capital Gains Account Scheme helps save income tax

The Capital Gains Account Scheme (CGAS) is a useful option for both Indian residents and Non-Resident Indians (NRIs) to save on income tax from long-term capital gains. These gains can come from selling land, property, or equities. NRIs can use a different version, called the Non-Resident Capital Gains Account Scheme (NRCGAS). To avoid capital gains tax, taxpayers can invest profits from sales in new residential properties under Sections 54 and 54F of the Income Tax Act. Section 54 applies when selling a residential property, while Section 54F is for other long-term assets. However, these sections require purchases to be made within specific time limits. If a taxpayer cannot find a property to buy in time, CGAS can help. The scheme allows gains from sales to be deposited into a designated account for up to three years, postponing the tax. Deposits must be made before filing the Income Tax Return (ITR) deadline. Taxpayers can use the funds from CGAS to invest in residential properties later. If the funds are not used as required, they will be taxed as capital gains later. There are two types of CGAS accounts: Type A, similar to a savings account, and Type B, like a fixed deposit. Interest earned is taxable, but the principal amount is tax-free as long as it is used correctly. To withdraw money, taxpayers must submit forms detailing the intended use of the funds. In the event that the money is not utilized within the given timelines, it will be subject to taxation. This mechanism ensures that taxpayers do not rush into property purchases and can take their time to invest wisely.