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On 19 November 2025, the Central Board of Direct Taxes (CBDT), under the auspices of the Ministry of Finance, notified the Capital Gains Accounts (Second Amendment) Scheme, 2025, a substantial update to the CGAS originally introduced in 1988.
Background and Rationale
The CGAS provides a mechanism for taxpayers who have derived long-term capital gains but have not yet reinvested those gain to deposit the amount in a designated account called a “capital gains account” and thereby retain eligibility for certain tax-exemptions under the Income‑tax Act, 1961 such as sections 54, 54F, 54G etc.
Over time, several factors made the original CGAS framework somewhat outdated:
- The spectrum of exemption provisions under the Act expanded, for instance, the introduction of section 54GA relating to moving industrial undertakings).
- Banking and payment technology evolved significantly but the CGAS Rules did not explicitly reflect the digital-first era.
- Paper-based procedures like passbooks, cheques/drafts remained the norm, which increased procedural friction.
In view of these factors, the amendment aims to modernise the CGAS by updating definitions, widening participation of banks, recognising electronic payment and statement mediums, and mandating a future shift to fully electronic closure of accounts.
Key Amendments Introduced
Here are the principal changes effected by the Second Amendment Scheme 2025:
a) Expansion of covered exemption sections
The definition of the scheme has been extended to explicitly include situations under section 54GA of the Income-tax Act. This means that taxpayers eligible for exemption under section 54GA will now be able to deposit their capital gains in the CGAS facility.
b) Widening of “Deposit Office” definition
The amendment alters the definition of “Deposit Office” by allowing:
- Branches of the State Bank of India (SBI) or its subsidiary banks; or
- Any “banking company” (as defined in section 5(c) of the Banking Regulation Act, 1949) which is authorised by the Central Government by notification to receive and maintain CGAS accounts.
This opens the door to a broader set of banks (including potentially private sector banks) being authorised to operate CGAS deposit facilities.
c) Recognition of “electronic mode” for payments
A major modernisation is the formal addition of the term “electronic mode” in the Scheme. It defines electronic payment as inclusive of credit card, debit card, net-banking, IMPS, UPI, RTGS, NEFT, BHIM/Aadhaar Pay.
Consequently, the deposits into the capital gains account may now be made via these electronic modes, in addition to cheque/draft.
The effective date of deposit for the purpose of claiming exemption is clarified, when the payment (cheque/draft or electronic mode) is received by the deposit office along with the application (Form A or equivalent).
d) Electronic statements and documentation permitted
The Scheme now allows for “electronic statement of account” in place of a physical pass-book. For example: in paragraph 7(7) and paragraph 9, language like “or electronic statement of account” has been inserted.
e) Digital closure of accounts from 1 April 2027
From 1 April 2027 onwards, the option for closure of a CGAS account must be furnished electronically, either under Digital Signature Certificate (DSC) or Electronic Verification Code (EVC).
The notification also empowers the Principal Director General (Income-tax Systems) (or Director General) to specify procedure for Form G/Form H, data standards, generation of EVC, as well as archival and retrieval policies.
f) Updated forms
Forms A, C, G and H, as applicable under the CGAS, have been amended to reflect insertion of “/by electronic mode” alongside demand draft references or addition of fields for transaction number (RTGS/IMPS/NEFT) under withdrawals.
OUR OPINION:
The Capital Gains Accounts (Second Amendment) Scheme 2025 marks a meaningful step in aligning a long-standing tax compliance mechanism with the realities of digital banking and evolving taxpayer behaviour. By embracing electronic payments, recognising digital statements, extending the list of authorised banks, and including newer exemption provisions (such as section 54GA), the government is delivering improved convenience and clarity.
For taxpayers who sell a long-term capital asset and are permitted to defer tax by depositing the gains (for example under sections 54, 54F, 54GA etc.), these changes reduce procedural friction and help assure smoother filing of exemption claims. At the same time, practitioners, banks and tax administrators will need to update systems and guidance to ensure the transition is seamless.
