Unsecured loan / gift to relative

Your Enquiry

Indian Income tax implication

Suggestion

I gave some money to my relative (my wife's sister's husband), few lakhs twice or thrice this year

Your saying:

1. This was just a gift to him

Any amount received by relatives is not taxable at all in the hand of recipients. In your hands this gift amount might have been taxed or exempted within the limitations of Income Tax Action. Else if donated amount proved to be taxable then tax authorities have right to follow the gifted amount in what ever form it is converted by done.

Provision reads as under: Section 56 of Income tax Act 1961( Income from Other sources)

Any amount received from specified relatives is totally tax free in the hands of recipient. So if a relative gives you gift in form of cash/cheque or in consideration, you will not have to pay any tax on the amount received. Following is the list of relations which are considered as “relatives” for this

1. Your spouse
2. Your brother or sister
3. Brother or sister of your spouse
4. Brother or sister of either of your parents
5. Any of your lineal ascendants or descendants
6. Any lineal ascendant or descendant of your spouse
7. Spouse of the persons referred  in above points

However you as donor (giver) has to establish his source of income while confirming the giving of gift. (In other words you have to show the proof as Donor that the amount so.. given is your legitimate income which either taxed or exempted. As far as you make the transactions which can be justified, there is not much to worry, It  is a good and safe practice to document things on a paper with proper signatures.

This will help you because income tax scrutiny can go back to many years of your life. The stronger your documentation and proof, the smoother will the situation be.

2. This was an unsecured loan to him without interest.

In case you claim that so called money lending is done Section 269SS and Section 269 T ( amount paid by way of cash and receiving back in cash) of Indian Income Tax Act 1961 applicable.

Section 269 SS reads as under:

No Person shall, take or accept from any other person (herein after called “depositor) any loans or deposits otherwise than by an account payee cheque or account payee draft....

Section 269T reads as under:

No branch of a banking company or cooperative bank and no other company or cooperative society and no firm or other person shall repay any loan or deposit made with it otherwise than by an account payee cheque or account payee draft drawn in the name of the person who has made the loan or deposit

In case of contravention to provisions of those sections penal Section 271D and Section 271E of Income Tax Act 1961 are applicable which provides that if a loan or deposit is repaid in contravention of the provisions of section Section 269 SS and 269T then a penalty equivalent to the amount of such loan or deposit repaid may be levied by the Department

There are limitations of cash loans and repayments there on.