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Can you please advise:

I am working in Dubai, and applied for a loan of 25 lakhs, I would like to use this funds to repay my personal loan (to relatives) and want to buy a land with left out money. I have two options – which one is good in terms of tax implication?

Option 1:
Send money to my mother's savings account directly

Option 2:
Open an NRE account in India and send money to this NRE account. Transfer funds online from the NRE Account to mother's Savings account. My mother can withdraw an amount of 30 Lk. (My mother has pan card and has pension account but didn't file any return, as her annual income is less than 60k/y). As this is a large amount transacting in her account, is there any tax implication? Will she get any tax notice? If yes, how to avoid this? Is this deposit considered as her income? Does she need to pay tax?

Can you please advise which is the best method?

Thanks Dheer for your quick response. I don't have any document for the relatives loan (those are all hand loans). Is income tax only ask question with regard to only source or even utilization of funds as well?

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1 Answer 1

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Transfer of Money from you to Your Mother is Tax Free. i.e. This will not be considered as income for your mother as there is NO work done. This would be considered as Gift and would fall under Gift Tax. As per Gift Tax you can give unlimited amounts to close relative. Mother is considered as close relative.

The tax rule is same whichever option you follow. You would need to maintain proper paperwork, should there be any query from Income Tax department.

Any interest / income your mother generates on this will be her taxable income.

You have also mentioned that you are repaying some loan for your relative, again the paper work should be very clear when your mother is transfering the money to your relative. The interest you pay back maybe taxable to your relative depending on paperwork.

Edit: Elobrate OP's edit to question From your point of view, once you have given the funds to your Mother and call it gift; it ends. What your mother does with the money invests, spends, etc is not your liability. However if your mother is tranferring money to person's who are not defined as relatives under Gift Law or the interest your relatives get are all taxable events to them.

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  • What if it's a no-interest loan?
    – o0'.
    Jul 7, 2014 at 13:02
  • No Interest loans between unrelated parties does not look good from Income Tax point of view.
    – Dheer
    Jul 7, 2014 at 15:05
  • Uh? They are not unrelated, they are relatives.
    – o0'.
    Jul 7, 2014 at 15:08
  • Can you put a different question with the exact relation and the loan amount and repayment schedule.
    – Dheer
    Jul 8, 2014 at 3:21

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