You have sold a property, made a healthy long-term capital gain, and you fully intend to reinvest it in a new house to claim a Section 54 or 54F exemption. There is just one problem: the new house is not ready to buy or build yet, and the deadline to file your income-tax return is fast approaching. If the money is still sitting idle in your bank account on the return due date, the exemption is at risk. The Capital Gains Account Scheme (CGAS), 1988 exists precisely to solve this timing gap.
The bottom line: if you cannot actually reinvest your capital gain before the due date for filing your return, park the unutilised amount in a CGAS account with an authorised bank before that due date. Doing so is deemed to be “utilisation” and preserves your exemption, giving you up to two or three more years to complete the purchase or construction. Miss this step and you lose the exemption for the amount left unused. Here is how the scheme works for FY 2025-26 (AY 2026-27).
What CGAS is for — the deadline problem
Exemptions such as Section 54 and 54F require you to reinvest within a window (typically 2 years to purchase or 3 years to construct a house). But the law also says: if the reinvestment is not made before you file your return, the unutilised amount must be deposited in a CGAS account by the return due date to keep the exemption alive. In effect, the deposit is a placeholder that tells the department, “I have earmarked this money for reinvestment and will use it within the permitted window.”
The account can only be opened at designated branches of authorised public-sector and select banks — not every branch offers it, so confirm before you go. No cheque book or debit card is issued, and no loan can be taken against the balance.
Which exemptions CGAS supports
CGAS is available for the reinvestment-based exemptions, including:
- Section 54 — capital gain on sale of a residential house, reinvested in another house.
- Section 54F — gain on sale of any long-term asset other than a house, where the net sale consideration is reinvested in a house.
- Section 54B — gain on sale of agricultural land.
- Section 54D, 54G, 54GA — compulsory acquisition / shifting of industrial undertakings.
- Section 54GB — investment in eligible start-up / manufacturing companies.
Section 54EC (capital gains bonds) does not use CGAS — that route requires you to buy the bonds within 6 months directly.
The rule that everyone gets wrong: the deposit deadline
The deposit must be made on or before the due date for furnishing your return of income under Section 139(1) — for most individuals, 31 July following the financial year. This is the single most important point. It is not “before you file”; it is “before the due date.” Depositing late, even if you file late, generally forfeits the exemption on the unutilised amount, though some courts have taken a lenient view where the deposit was made before the belated return under Section 139(4). Do not rely on that relief — treat the 139(1) due date as the hard deadline.
One more nuance for Section 54F: you must earmark the entire net sale consideration, not merely the gain. Whatever part of the net consideration you have not already reinvested by the due date must go into the CGAS account to claim full exemption.
Type A vs Type B — pick the right one
The scheme offers two account types. Choosing correctly saves you both interest and administrative hassle.
| Feature | Type A — Savings Deposit | Type B — Term Deposit |
|---|---|---|
| Nature | Like a savings account | Like a fixed deposit |
| Interest | Lower (savings rate) | Higher (term-deposit rate) |
| Liquidity | High — withdraw as needed | Locked for the chosen term |
| Best for | Construction, where you pay in stages | A lump-sum purchase on a known date |
| Modes | — | Cumulative or non-cumulative |
A common approach is Type A when you are building a house and need to draw money for contractors periodically, and Type B when you plan a single purchase and want a better interest rate in the meantime. You can also convert between types using the prescribed form.
The forms you will actually use
| Purpose | Form |
|---|---|
| Open the account | Form A |
| Convert between Type A and Type B | Form B |
| First withdrawal | Form C |
| Subsequent withdrawals | Form D |
| Nomination / change of nominee | Forms E / F |
| Closing the account (needs AO approval) | Form G |
| Closure by nominee / legal heir | Form H |
Two operational rules trip people up. First, money withdrawn from the account must be utilised within 60 days for the intended purpose; anything not so used should be re-deposited. Second, you cannot simply close the account when you please — closure requires the Assessing Officer’s approval via Form G, which is how the department confirms the exemption conditions were met.
A worked example
Suppose Meera sells a plot in August 2025 for a net consideration of Rs. 80 lakh and wants to claim Section 54F by building a house. By 31 July 2026 (the return due date), she has spent only Rs. 20 lakh on the new construction.
| Particulars | Amount |
|---|---|
| Net sale consideration (Section 54F base) | Rs. 80,00,000 |
| Reinvested before due date | Rs. 20,00,000 |
| To be deposited in CGAS by 31 July 2026 | Rs. 60,00,000 |
| Time to complete construction | 3 years from date of transfer |
By depositing the Rs. 60 lakh in a CGAS account before 31 July 2026, Meera preserves her full Section 54F exemption on the entire Rs. 80 lakh, and now has until August 2028 to finish building. You can work out exactly how much you need to deposit or reinvest using our Capital Gains Exemption Calculator, and cross-check the underlying gain with our Capital Gains Tax Calculator.
What happens if you don’t use the money
This is the sting in the tail. If you do not utilise the CGAS balance within the permitted window, the unutilised amount is charged to tax as a capital gain of the previous year in which the period of three years from the date of transfer of the original asset expires. Note the timing: even for a Section 54 purchase (a 2-year window), the charge under the CGAS provisions crystallises when the 3-year period lapses. It is taxed as a long-term capital gain of that later year — the exemption is effectively clawed back.
Under Section 54F, the clawback is proportionate. If only part of the deposited amount is used, the exemption withdrawn is calculated as: capital gain × (unutilised amount ÷ net sale consideration). So partial use still saves partial exemption — you are not penalised on the whole gain for a shortfall.
Also remember: interest earned on the CGAS balance is fully taxable as “income from other sources” in the year it accrues, and the bank deducts TDS on it. The interest does not enjoy any capital-gains exemption.
Key takeaways
- CGAS lets you keep a Section 54/54F/54B/54D/54G/54GB exemption alive when you cannot reinvest before filing your return.
- Deposit the unutilised amount before the Section 139(1) due date (usually 31 July) — this is the deadline that matters, not the date you actually file.
- Choose Type A (savings) for staged construction payments, Type B (term deposit) for a lump-sum purchase with better interest.
- Withdrawn money must be used within 60 days; closing the account needs the Assessing Officer’s approval via Form G.
- Unutilised amounts are taxed as capital gains when the 3-year period from transfer expires — proportionately for Section 54F. Interest earned is separately taxable.
Frequently Asked Questions
I filed my return before 31 July but forgot to deposit in CGAS. Can I still deposit now and claim the exemption?
Risky. The law requires the deposit on or before the Section 139(1) due date. Depositing after that date generally forfeits the exemption on the unutilised amount, so treat the due date as a hard cut-off.
Can I withdraw money from the CGAS account whenever I like?
Withdrawals are allowed for the intended reinvestment using Form C/D, but any amount withdrawn must be used within 60 days for the specified purpose. To close the account you need the Assessing Officer’s approval through Form G.
Is the interest earned on a CGAS deposit tax-free like the capital gain?
No. Interest is fully taxable as income from other sources in the year it accrues, and the bank deducts TDS on it. Only the capital gain enjoys the exemption, not the interest.
What is the deadline to actually use the deposited money?
Two years from the date of transfer to purchase a house, or three years to construct one (the windows differ for other sections). If you miss it, the unutilised amount becomes taxable when the three-year period from transfer expires.
Can I use CGAS to claim a Section 54EC bond exemption?
No. Section 54EC requires you to invest in specified REC/PFC/IRFC bonds within 6 months of the sale directly. CGAS applies only to the house/asset-reinvestment exemptions such as Section 54 and 54F.
This article explains the general legal position for FY 2025-26 (AY 2026-27) and is not a substitute for advice on your specific facts. The Income-tax Act, 2025 renumbers these provisions from AY 2027-28, but the substance of the Capital Gains Account Scheme described here continues.