Conversion of loan to gift

This query is : Resolved

saurabh vijaivargiya (Querist)
Follow

25 March 2016 Hello All, One of my relative has given a loan to his father for the purpose of his business, now he ( my relative) doesn't want the loan amount back but want to gift the same to his father. Can he do this? If yes, please tell the procedure. Thanks in advance.

Ankur Singhal

Ankur Singhal (Expert)
Follow

25 March 2016 Dear
Whats the relation ship between your father and that relative.
And what will be the relation ship between your father and the father of that relative.
What the identity of business i.e whether proprietership, partnership company. etc.

saurabh vijaivargiya

saurabh vijaivargiya (Querist)
Follow

25 March 2016 Dear Ankur Sir, It seems that you have misunderstood my query. My relative has given loan to his father only and not my father. My father has no role in the picture. Bussiness type is proprietorship. Regards Saurabh Vijai

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
Follow

20 July 2024 Yes, your relative can convert the loan into a gift for his father. Here’s the procedure and considerations involved in converting a loan into a gift:

### Procedure to Convert Loan into Gift:

1. **Documentation**:
- Prepare a gift deed on a stamp paper of appropriate value as per the Stamp Act applicable in your state. The gift deed should clearly state the intention to gift the loan amount to the father.
- Include details such as the name and relationship of the donor (your relative) and the donee (his father), description of the gift (loan amount), and any conditions or terms associated with the gift (if any).

2. **Execution of Gift Deed**:
- Both the donor (your relative) and the donee (his father) must sign the gift deed in the presence of at least two witnesses.
- The witnesses should also sign the gift deed, confirming the execution of the gift.

3. **Registration of Gift Deed**:
- Depending on the state where the gift is being executed, registration of the gift deed may be mandatory. Some states require gift deeds to be registered to be valid.
- If registration is required, submit the gift deed along with the prescribed fee to the Sub-Registrar of Assurances within whose jurisdiction the property (or loan amount in this case) is situated.

4. **Delivery of Possession**:
- If the gift is of a movable property (such as cash, in this case, representing the loan amount), delivery of possession is essential to complete the gift.
- In the context of a loan amount, this could mean transferring the amount from your relative’s account to his father’s account, or any other agreed-upon method of delivery.

5. **Income Tax Implications**:
- From an income tax perspective, gifts received from specified relatives (including father and son) are generally exempt from tax under Section 56(2)(x) of the Income Tax Act, 1961.
- However, it’s advisable to maintain proper documentation (like bank transfer details) to substantiate the gift transaction in case of any scrutiny by tax authorities.

### Legal and Financial Advice:

- **Legal Counsel**: Consult with a lawyer or legal advisor to draft the gift deed and ensure compliance with all legal formalities.
- **Tax Advisor**: Seek advice from a tax consultant or chartered accountant to understand any tax implications and ensure compliance with tax laws.
- **Family Agreement**: Although not mandatory, it’s recommended to have mutual understanding and consent between your relative and his father regarding the conversion of the loan into a gift.

By following these steps and seeking appropriate professional guidance, your relative can effectively convert the loan into a gift for his father, ensuring legal compliance and clarity in the transaction.

You need to be the querist or approved CAclub expert to take part in this query .
Click here to login now