Capital Gains Account Scheme (CGAS)

 

The Capital Gains Account Scheme (CGAS) is a special facility under the Income Tax Act that allows taxpayers to temporarily park their capital gains when they are unable to reinvest them before the due date of filing their income tax return. It ensures that individuals and HUFs can still claim exemptions under sections like 54, 54B, and 54F by depositing the required amount into a designated bank account. The deposited funds must then be utilized within the statutory period (two years for purchase, three years for construction, or two years for agricultural land). If the amount remains unutilized after the deadline, it automatically becomes taxable as long‑term capital gain in the year of expiry. In essence, CGAS acts as a compliance cushion—helping genuine taxpayers preserve their exemption eligibility while preventing misuse by ensuring eventual taxation of unspent balances.

1. Capital Gains Account Scheme (CGAS) Basics

• Deposit requirement:
• Section 54, 54B → deposit capital gain.
• Section 54F → deposit net sale consideration.
• Opening: directly at bank (no AO approval).
• Closure: requires AO approval.

2. Taxability of Unutilized Amount

• If not utilized within 2–3 years:
• Becomes taxable in the year of expiry.
• Taxed as long-term capital gain (nature preserved).
• CGAS is a compliance cushion, not a loophole. Wrong intent only defers tax, cannot avoid it permanently.

3. AO’s Role

• AO may deny closure temporarily if reinvestment proof is missing or period not expired.
• Ultimately closure is allowed, with taxation of unutilized balance.
• Application is offline (formal request + documents). Online submission possible only if AO allows via e-Proceedings.

4. Case Study

• Sale: 03-01-2026, ₹1.5 crore.
• Purchase: 10-07-1999, ₹20 lakh.
• Eligible for FMV substitution as on 01-04-2001.
• Indexed cost (if FMV ₹30 lakh): ≈ ₹1.09 crore.
• LTCG ≈ ₹41 lakh.
• Deposit unutilized LTCG in CGAS by ITR due date (31-07-2026 / 31-10-2026).
• Reinvestment deadline:

• Purchase → by 02-01-2028.
• Construction → by 02-01-2029.

5. Tax Rate Update (Budget 2024)

• LTCG on property:
• 12.5% flat (no indexation) OR
• 20% with indexation.
• Taxpayer can choose whichever is beneficial.
• Applies under both old and new regimes (regime-neutral).

6. Sections 54, 54B, 54F – Scope

• Section 54: Sale of residential house → reinvest in residential house.
• Section 54B: Sale of agricultural land → reinvest in agricultural land.
• Section 54F: Sale of any other long-term asset (not house) → reinvest in residential house.

7. Capital Gain vs. Net Sale Consideration

• Net Sale Consideration: Sale proceeds minus transfer expenses.
• Capital Gain: Net sale consideration minus indexed cost & improvements.
• Exemption rules differ:

• Section 54/54B → deposit capital gain.
• Section 54F → deposit net sale consideration.

 

Example:

• Sale price: ₹1,00,00,000
• Transfer expenses: ₹2,00,000 → Net Sale Consideration = ₹98,00,000
• Indexed cost: ₹62,05,000 → Capital Gain = ₹35,95,000
• For Section 54F → deposit ₹98,00,000.
• For Section 54 → deposit ₹35,95,000.

 

 

GST 80% Rule in Real Estate Sector – Summary Guide

 

1. Overview of the 80% Rule

·        Promoters must procure at least 80% of taxable inputs and services from registered suppliers annually, project-wise.

·        If shortfall exists, RCM (Reverse Charge Mechanism) applies on the shortfall.

·        Cement from unregistered suppliers is always liable under RCM (earlier 28%, now 18% under GST 2.0).

2. Calculation Basis

·        The rule is applied annually, project-wise, not monthly.

·        Shortfall is determined at year-end, and RCM is payable by June of the following year.

3. Treatment of Non-GST/Exempt Items

·        Non-GST supplies (e.g., electricity, petrol, diesel, alcohol) and exempt supplies (e.g., health, education, agricultural produce) are excluded from the 80% calculation.

·        Salary and wages are excluded as they are not considered supplies under GST.

4. Special Cement Rule

·        Any cement purchased from unregistered suppliers is always taxed under RCM.

·        To avoid RCM liability on cement, builders must procure 100% cement from registered suppliers.

5. Adjustment of Shortfall

·        If overall registered procurement is less than 80%, the shortfall is first adjusted against cement if unregistered cement exceeds 20%.

·        If not, the shortfall is adjusted against other taxable inputs/services.

6. Composition Dealers

·        Purchases from composition dealers count as registered for the 80% rule.

·        However, no Input Tax Credit (ITC) is available on such purchases.

·        These purchases help meet the threshold but should be flagged separately.

7. Key Takeaways

·        Annual, project-wise compliance is required.

·        No item-wise 80% test is needed, except for the cement carve-out.

·        Cement from unregistered suppliers always attracts RCM.

·        Composition dealers count as registered but ITC is not available.

8. Applicability to Commercial Real Estate

- The 80% rule applies only to residential real estate projects under concessional GST rates (1%/5%).

- Commercial projects (offices, malls, shops, warehouses) are not covered under the 80% rule.

- Commercial projects continue under normal GST rates with ITC available.

9. GST Rates for Commercial Real Estate

- 12% GST: Sale of under-construction commercial property (shops, offices, warehouses) with ITC available.

- 18% GST: Renting/leasing of commercial property (shops, offices, warehouses) with ITC available.

- 0% GST: Sale of completed/ready-to-move commercial property (only stamp duty/registration applies).

- Sale of land: Exempt from GST.