To Gift or To Loan

Q. A & B are Brothers married and staying in joint family.Each of them are separately assessed for Income tax. B sales shares worth 1 cr paying STT which he had baught before more than 3 years. B invests this amount equally in 4 names i.e A Plus A`s wife, B & B`s Wife 25 Lakhs each in Mutual Funds.Can you please advise the tax Implecation and also we should make a Gift Deed for this or show as a loan to others.Please advise in detail.

Best Regards.

Answer :- Dear friend, From ur query, it seems u had directly invested the amount of 25L for each person as mentioned by U, from ur own bank account. This `ll be treated as cash gift.If u had first invested all the 75L Rs. (for other 3 members), under ur name & later gifted the alloted units to ur family members, then it w`d be a gift in kind.

U`ll ask, what`s the difference in this?

In case of gift – For ur Brother A & his wife, the income from such MF investments, `ll be taxable in their own hands, but in ur wife`s case, if the income from these MFs is taxable (if the gains r STCG from Eq. MFs or the MFs r debt oriented), it `ll be clubbed with ur income under the clubbing provisions of Section 64. For ur own 25L Rs. the income generated by MFs `ll be taxable in ur hands if it is taxable at all.In case u want to show the 25L rs. to all other 3 persons as loan, in this case, the interest received (if any) from these 3 `ll be taxable in ur hands & the income from these MFs `ll be taxable in the hands of the respective owners. In this case, even ur wife`s investment `ll be taxable in her hands & clubbing provisions of section 64, `ll not be applicable as it was not a cash gift. Instead it was a loan & u r paying Tax on ut interest income.

I hope the above info is useful for u. Plz. feel free to ask, if u need more help.


2 Responses to To Gift or To Loan

  1. Ankur says:

    1. How to show something as gift? Say I want to gift my mother a sum of 100000 lac. How can I show it as gift?

    2. Same thing I would like to know for loan instead of gift.

    3. Also if I gift something to my mother, will the income earned from that be covered under provision of clubbing of income for taxation purpose.

    4. If I loan something to my mother, will the income earned from that be covered under provision of clubbing of income for taxation purpose.

    5. What will be the case for question 3&4 if I replace mother with my wife.

    • ashalanshu says:

      Dear Ankur, here are the answers for your queries.

      1. First of all please use either bank cheque or netbanking to transfer amount. At the same time, please prepare a simple gift deed on a plain paper that you have gifted X amount to your mother & both of you should sign the same. While you mother ‘ll write before her sign that – I’m accepting the gift.
      Please note a plain paper not any special thing.

      2. In case of loan, you w’d have to prepare a loan deed but this is to be done on a stamp paper be it printed or franked or e-stamped. The loan deed should mention, the loan amount, rate of interest, tenure of loan, repayment schedule & any other T&C as per your own comfort level.

      3. The income earned from the gifted amount ‘ll remain taxable in the name of mother & no clubbing.

      4. The interest earned by you ‘ll be your taxable income from the loaned amount where as the income earned by your mother from the loaned amount ‘ll be her taxable income.

      5. In case of gifting to wife, the clubbing provisions ‘ll be applicable & whatever taxable income is generated from the gifted amount, the same ‘ll be added to your name. In case of Loan, interest is your income & the income from the loan amount ‘ll be of wife.



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