Creditworthiness - Inheritance vs Normal Gift

Hi,

My wife gave loan of Rs 24 lacs to her mother 5 yrs back. Every year her mother makes interest payment of about 8 percent to my wife. Now last year my father-in- law expired and my wife's mother received Rs 48 lakhs as nominee from her husband's PPF account. My wife is entitled to Rs 16 lakhs from this money as one of the three legal heirs. 

Now my mother-in-law wants to give my wife Rs 16 lacs as inheritance money given to legal heir. She doesn't want to return the loan of Rs 24 lacs as of now, instead she wants to convert the loan to an interest free loan going forward.

Would the inheritance amount of Rs 16 lacs given to my wife attract any income tax in her hand? Also should my mother-in-law first repay the loan taken from my wife and only then she can pay the inheritance amount to my wife?

Because someone said that inheritance money is a sort of gift and hence only someone who is creditworthy can make the payment. And while the loan remains unpaid by my mother-in-law she cannot be considered creditworthy.

Thanks in advance.