Loan to Wife with Notional Interest?

Genuine LOAN transactions will not be considered as gift.

But if you camouflage Gift as loan with no intention of repaying back the same could be considered as gift by the AO.

Hence interest bearing loan transactions are safer to prove that the amount is in the nature of Loan and not gift

Originally posted by : Rachit
	Genuine LOAN transactions will not be considered as gift. But if you camouflage Gift as loan with no intention of repaying back the same could be considered as gift by the AO. Hence interest bearing loan transactions are safer to prove that the amount is in the nature of Loan and not gift

Thanks for your kind clarification.

Is A/c payee Cheque is must for such loan given by Husband to Wife. If yes, then what if both Husband and Wife are holding Joint Account only, in which case giving cheque is not possible as it is a joint account.

Kindly Advice.

Loans upto Rs.20,000/= can be given in cash. Loan above 20K is required to be given by A/c Payee cheque only. The repayment too should be by way of A/c payee cheque.

In your illustration it would be advisable to open a new bank account of the wife.

in my opinion....AO wud never consider such transaction as gift bcoz a gift from husband to wife is not taxable at all...however the clubbing provisions shall apply and the income earned by the wife on the loan amount shall be taxable in the hands of the husband....so it is better to charge interest(if possible, prevailing bplr) on loan

Hi Rahul,

In which book u read that, Clubbing prov. will applicable in case of Loan.

Pls., Let me know.

As per my knowledge, their is no clubbing appliicable and it is not necessary to charge any interest on it.

But, Yes for your proof , u should give loan by account payee cheque.