Gift or loan to mother for property construction

Gift or loan to mother for property construction

Hello, my mother is getting a property constructed in Delhi by a builder by paying the construction costs herself. To support her financially, my husband (foreign national and overseas citizen of India (OCI)) and I (indian national and foreign resident or NRI) want to give her half the construction costs from our joint NRE account. We would like to give it as either an interest free loan which she can pay back once she starts getting rental income or as a gift. In return she will write in her Will that one floor will be inherited by us jointly. I have the following questions-
1. Can we gift her over 1 crore by bank transaction from our joint NRE account? Will she have to pay any income tax, gift tax, stamp duty or any other charge? Will we have to pay anything? Do we need to prepare any documentation for this?
2. If we give my mom a loan, does she have to pay it back to us within a fixed time period? What if she does not manage to pay it back in full, will she need to pay income tax? Do we need to make a loan agreement with her?
3. Is it possible that we gift the money to my mom for the construction and after construction she gifts us one floor? Or will this be considered a sale? Will she have to pay income tax and stamp duty on the money we gifted her and the floor she transfers?
4. Does it make sense to have a combination of smaller loan (that she can pay back with rental income) and larger gift?
Thanks and kind regards

Asked 2 years ago in Income Tax

No income tax needs to be paid on gift received from her daughter or son in law but it is recommended to have a gift deed prepared as the amount would be a bit high.

In case of loan we also need to check applicability of FEMA. Time period for payback and also would depend on FEMA law.

Yes both can gift each other such things but there cannot be a link between both otherwise it will not be a gift and would be subject to capital gain.

Having a combination would make it more complicated.

I would recommend to book a separate consultation for the same as it will have FEMA related complications.

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Thank you.

Naman Maloo

CA, Jaipur

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1. It would be better if you go with the gift. As it would be a gift between the relative, it won't be taxable in the hands of recipient. Draft gift deed properly.

2. She can repay as per the loan agreement. There is no such fixed period. Non-repayment of full loan amount will not result into payment of income tax by her.

3. She can inherit the floor in your name. Draft the will properly.

For detailed discussion you may opt for phone consultation.

Vivek Kumar Arora

CA, Delhi

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1. You can gift her without any tax implication or stamp duty impact on the transactions

2. You can also give loan and there is no need of repayment period defined. it will not have any tax implications

3. When she will gift you guys constructed floor. Gift will be exempt from the taxation but it will be subject to stamp duty

4. The best way is to show it as loan so you guys have more comform to take back money and also show amount as interest as and when that adjustment is required

Vishrut Rajesh Shah

CA, Ahmedabad

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