Dear Gaurav,
I have gone through your query and I understand your concern regarding the funds from your Capital Gains Account (CGAS). Here I would like to provide you with some answers that might help you out.
Firstly I would like to let you know that you are obviously allowed to withdraw the amount for purchasing any residential property if you have deposited the amount of capital gains (which you have earned by selling a property), as prescribed under Section 54 of the Income Tax Act, 1961, but only in a specific time.
The section says that you can withdraw the amount only when the intention is to purchase a new property within two years from the date of the sale of the original property, just for the sake of getting exemptions on taxes relating to capital gains. So as per the concept, you can withdraw your CGAS as long as the purpose is to invest in a new property.
Additionally, the Income Tax Act doesn’t specifically mention any concept regarding the repayment of the personal loans that you have borrowed from your relative, in the context of CGAS.
Once you have withdrawn the funds and used them for the same purpose, there will be no effect regarding the tax benefits on any subsequent transactions like returning the borrowed money to your relative.
However, you must ensure that the withdrawal of the funds from the CGAS is directly linked to the purpose of purchasing a new property. This can also be referred to the case of CIT v. R. L. Sood (1988) as in the case the honorable court has held that the withdrawal must not be made for any personal use other than investing in a new property.
Hence, I would like to let you know that till the time you are following the conditions mentioned in Section 54 of the Income Tax Act, you are free to proceed with the repayment of the funds that you borrowed from your relatives.
I hope I was able to help you with the answer, and if you need any further clarifications, please feel free to connect with me on LinkedIn.( www.linkedin.com/in/pankhuri-rastogi-9221b2289)
Thank You.
