Loan to relative

I am in dilemma, My PF account got matured and I am no more interested in investing the amount anywhere as I may need money in near future for some property or for children education. Now my brother-in-law wants money for his business and ready to pay interest more than what I am getting in saving account but I do not want to take this interest (due to close & intimate relation), Is it possible to give this amount as loan at zero interest or I shall go with 4% (but in this case I'll have to pay tax, which again I do not want to bear). Amount is more than 10L. Can I tranfer the amount to my wife's account as gift and later she can transfer the amount to her brother or father and accept interest & file return. Please provide the viable/realistic solution to avoide / reduce tax burden on my head.

asked Jul 24 '15 at 16:05 by sakiv1089 18681330


There is no issue in giving amount at zero interest in such relation. You can transfer amount to your wife as gift and then she can also transfer same to his brother as gift.

answered Jul 24 '15 at 19:38 by pankaj 5.2k320

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Family loans are still treated as loans when it comes to filing taxes. This can be confusing for an individual who thinks a loan from mom or dad is not of concern to the IRS. However, the IRS is very aware of the way loans and gifts between family members can be used to avoid taxes. As a result, these loans and gifts are subject to explicit tax rules that must be followed.

You Must Charge Interest

If you do not charge interest on a loan to a family member, it is considered a gift. You, the donor, are responsible for paying a gift tax in this case. Further, the annual amount you can gift is limited. As a result, if you are extending a loan not a gift, it is wise to charge interest equal to or exceeding the applicable federal rate (AFR). You can find the AFR on the IRS website, and the exact AFR in any situation will depend on the length of the loan; short term loans last three years or less, mid-term loans last between three and nine years, and long term loans last more than nine years. The applicable rate will depend on the length of the loan because it is set based on Treasury bond rates.

The Receiver May Deduct Interest

While the individual receiving a loan must pay interest, they may be able to deduct that amount from federal income taxes. The amount the receiver can deduct depends on how the loan is used. For example, if the loan is used to repay other debts, the deductible amount is equal to non-deductible personal interest on the other loan. If the loan is used to build, improve or otherwise fund a business, the interest is a deductible business expense. If the loan is used to purchase an investment asset, the interest rules applying to that particular investment must be followed. Finally, if the loan serves as a mortgage, the individual can deduct the interest just like mortgage interest.

answered Aug 23 '15 at 23:01 by Yash M Jhaveri 611

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Is there any way to help the needy relatives..?
(May 03 '16 at 13:55) sakiv1089

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Asked: Jul 24 '15 at 16:05

Seen: 1,637 times

Last updated: May 03 '16 at 13:55