Inheritance money and loan transactions are independent. They can not be correlated. Rs.16 lacs is exempt in the hands of your wife but show it as an exempt income under her ITR. Your mother in law can convert loan interest free supported by supplementary agreement.
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.
Asked 2 years ago in Income Tax
Hi
Your wife may receive the inheritance money. It would be exempt from tax.
She can take inheritance money. There is no liability to repay the loan first.
There is no tax on inheritance money received.
Dear Sir,
Hope you are doing well !!
She can take the same as inheritance money. It would be tax exempt.
Since your wife would be receiving such amount as gift from mother hence no tax would be attracted on same.
There is no such requirement that loan should be repaid first before giving gift both are separate transaction and you can document them accordingly.
Is mother in law using the loan amount for some business?
I dont think loan would hinder gift as she has the source of such gift i.e. PF of father in law.
Hope you find the information helpful, if yes do rate if 5 and provide your valuable feedback for my improvement.
Thank you.
Your wife will be receiving Rs 16 L as a legal heir and not as a gift from her mother, who received Rs 48 L as a nominee and she has to share the same with other legal heirs. Hence the question of credit worthiness of your MIL does not arise.
Whether the loan of Rs 24 L is with interest or without interest is a matter of mutual agreement between your wife and her mother. The terms of loan, i.e. interest and tenure can be changed with mutual agreement and there is no need to link with the inheritance amount.
Gift from mother is non taxable. There is no such requirement that loan should be repaid first as both are separate transaction.
Thank you everyone, for your valuable inputs. Actually I didn't clarify that my wife's mother-in-law is actually running a business of trading glass, as a sole proprietor. The above mentioned loan of 24 lakhs was actually given by my wife to this proprietor business of her mother. Now after 5 years if this loan that was giving 8% interest annually is converting into a interest-free loan going forward - would that be valid as per income tax act? Further would there be an upper limit on the number of years that this loan can remain outstanding for the proprietorship business?
Asked 2 years ago
Your mother in law and your wife may have a memorandum of understanding for renewal of the loan on revised terms for business exigencies. Alternatively, your wife may join as her partner also. This may be done taking into account the overall tax savings
- Repayment of loan and payment of interest annually and other terms & conditions of loan transactions is governed by the loan agreement. It would be advisable to draft supplementary loan agreement for amendment in clauses of the initial loan agreement. It is acceptable by the Income tax Act.
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