Loan to parent

I am thinking of giving interest-free loan to my mother so that she can put it in fixed deposit in her name. There are two reasons why I would want to do this.

1 - My mother will get better interest rate as she is senior citizen.

2 - She will be in lower tax bracket and may have to pay lesser or no tax.

I want to know if I am allowed to do this. If I am allowed to make this kind of an arrangement, how should I document the interest-free loan? Is there any upper limit on the amount of loan or the term of the loan?

Some points that may be relevant:

a) My parents live with me in the house owned by me.

b) My mother has rental income through properties owned by her. But, she is not a tax payer as the income is less.

c) My father has business income. He is also not a tax payer as the income is less.

asked Nov 01 '12 at 13:46 by Shahul 11

You are allowed to do this. As such there is no legal issues in it.

You can create a loan agreement on plain paper mentioning amount given and interest rate (as zero). It may also show repayment terms and schedule. There is no upper/lower limit on interest, amount and duration.

answered Nov 01 '12 at 14:33 by Pankaj Batra 5.2k320


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Asked: Nov 01 '12 at 13:46

Seen: 1,372 times

Last updated: Nov 01 '12 at 14:33