Union Budget 2026: CGAS process faces scrutiny over manual processes and tax filing hurdles

As the government readies Budget 2026, the Capital Gains Account Scheme (CGAS) is once again under the spotlight, with taxpayers and tax professionals highlighting persistent operational hurdles that undermine its effectiveness as a tax-saving instrument.

Introduced in 1988 to help taxpayers claim exemptions on long-term capital gains when immediate reinvestment is not possible, the scheme has undergone amendments in 2012 and most recently in November 2025. While the latest changes mark a step forward, practitioners say the system remains burdened by structural and technological gaps.

The Second Amendment to the CGAS Rules, which came into effect on November 19, 2025, aimed to modernise the scheme by allowing electronic deposits, enabling online account closure and expanding the number of eligible branches. These reforms addressed several long-standing issues linked to the scheme’s dependence on traditional, paper-driven banking processes. However, experts say the core challenge persists: the absence of full digital integration between banks offering CGAS accounts and the Income-tax Department’s e-filing ecosystem.

Currently, CGAS accounts can be opened only with designated banks, and taxpayers must manually track deposits and withdrawals. This information does not flow automatically into the income tax portal, forcing individuals to self-report every transaction in the capital gains schedules of their Income Tax Returns (ITRs). The lack of auto-population and system-level validation often results in mismatches across financial years, increasing the risk of notices, compliance checks and prolonged assessments.

Anita Basrur, Partner at Sudit K. Parekh & Co. LLP, said that while the intent of CGAS remains sound, its execution continues to create friction for taxpayers. “Many users face challenges because of the scheme’s reliance on manual processes and limited access through select banks. Compliance becomes particularly cumbersome during return filing, as deposits and withdrawals must be self-reported. This increases the risk of errors, mismatches and tax notices,” she said, adding that there is growing demand ahead of Budget 2026 for end-to-end digitisation of the scheme.

Basrur explained that the original purpose of CGAS was to allow taxpayers who earn long-term capital gains under specified sections to temporarily park unutilised funds when reinvestment is delayed by timing constraints. “Investment in a CGAS account is treated the same as direct reinvestment for exemption purposes. However, until November 2025, the scheme functioned like a traditional bank account with virtually no digitisation, making independent verification difficult for authorities,” she noted.

Tax professionals say the absence of integration extends beyond the e-filing portal. There is currently no system-level linkage between CGAS data and tools such as the Annual Information Statement (AIS) and the Taxpayer Information Summary (TIS). As a result, tracking the utilisation of funds becomes complex, particularly when reinvestments are staggered over time. Manual classification of transactions in ITR-2 or ITR-3 further heightens the risk of incorrect reporting, potentially jeopardising legitimate exemption claims.

Accessibility is another sticking point. Although more private banks have recently been permitted to offer CGAS accounts, coverage remains uneven across regions. This can delay account opening at crucial moments, especially when taxpayers must deposit capital gains quickly to preserve eligibility for exemptions.

The November 2025 amendments have eased some operational pain points by recognising electronic deposits, expanding branch coverage and enabling online account closure. Yet, as Basrur points out, integration challenges remain unresolved. “There is still no direct, automated linkage between CGAS banks and the Income-tax Department’s e-filing portal. Taxpayers must continue to self-report all transactions, which keeps the risk of errors alive. What is needed now is seamless data flow between banks and tax authorities so that relevant fields can be pre-filled in ITR forms,” she said.

As expectations build around Budget 2026, many in the tax ecosystem hope the government will take the next logical step, transforming CGAS into a fully digital, integrated platform. Such a move, they argue, would not only reduce compliance friction but also align the scheme with India’s broader push toward technology-driven tax administration.