Fund given to relative a/c

Ramesh Baliram Lute (Querist) 26 June 2020 This query is : Resolved
My relative has need of fund for purchasing Agrl.land. He want Rs.5,00,000/- as time being shortfall of fund. He refund this amount after 2-3 months. If I deposit his a/c Rs.5,00,000/- by cheque what will be purpose while transferring the fund. either Deosit/Gift/loan . What implication of Income Tax scrutiny of Bank A/c stmt. High Value txn. in my a/c. How I will show this type of txn for giving and receiving money

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This discussion explores the implications of lending a large sum of money to a relative for land purchase. Key concerns include how to document the transaction (loan vs. gift), potential income tax scrutiny on bank accounts due to high-value transactions, and how to declare the money given and received. Advice suggests obtaining a promissory note or other collateral, and highlights that while the principal amount isn't taxed, any interest earned would be. The conversation also touches on the practical difficulties of relatives repaying loans and the importance of safeguarding one's own financial position.

Raj Kumar Makkad (Expert) 26 June 2020
If you have already having the said amount in your bank then get a promissory note executed from your relative prior to releasing the said loan amount which shall attract the interest and the amount of the interest shall only be taxable in your hands once the said amount is repaid and if the amount proposed to be given as loan to your relative is in the shape of cash which you want to deposit in the bank account of your relative then you shall have to bear various hurdles like-bank shall not deposit such huge amount and you shall only to deposit and amount of Rs. 25,000/- per day, second you shall have to provide a copy of your PAN Card number and ultimately the said amount shall be counted as your income and you shall be liable for the liability of taxation.

Ramesh Baliram Lute (Querist) 26 June 2020
Thank You Very Much Sir, for your valuable advise. I avoid this type of transactions.

Raj Kumar Makkad (Expert) 26 June 2020
You are always welcome Mr. Author. One should save himself first before serving others.

Rajendra K Goyal (Expert) 26 June 2020

How he would be able to arrange the money in 2-3 months?

Why the deal can not be postponed for 2-3 months, if money can be arranged at his level?

Whether taking money from other relatives also, if so on what terms and tune?

Whether each side is having PAN card.

Do you file income tax return?

Have you average balance of the tune in your account in general.

Generally, money given to relatives result in serious family dispute when asked to repay the same.

Rajendra K Goyal (Expert) 26 June 2020
You said:
My relative has need of fund for purchasing Agrl.land. He want Rs.5,00,000/- as time being shortfall of fund. He refund this amount after 2-3 months.
Reply:
Have you inquired what would be source of arrangement in such a short span of time for repayment ?

Rajendra K Goyal (Expert) 26 June 2020
You said:
If I deposit his a/c Rs.5,00,000/- by cheque what will be purpose while transferring the fund. either Deosit/Gift/loan .

Reply:

It is not a gift; you want your money back in 2-3 months as promised.

If you treat it as deposit, you are transferring the amount from Bank, which is a better place to deposit. Seems not an attractive place to deposit from Bank to a private person. Deposit also attract interest, which would be taxable.

Loan would be better wording. Try to have proper documentation, request for loan, secured either by promissory note with Receipt of payment, or through postdated cheques (proposal for decriminalization of cheque bounce is in air) or mortgage of land / property. Interest earned from loan would also be taxable.

Rajendra K Goyal (Expert) 26 June 2020
You said:
What implication of Income Tax scrutiny of Bank A/c stmt. High Value txn. in my a/c.

Reply:

If properly accounted, there would be no problem provided you are having said money in your account. If you deposit in cash and then pay from your account, there would be problem. Source of such cash has to be disclosed. Cash transaction limit is limited.

You said:
How I will show this type of txn for giving and receiving money

Reply:

Through Banking account through cheque.

Raj Kumar Makkad (Expert) 27 June 2020
The author has already decided not to lent the discussed amount to his relative as mentioned by him in the subsequent posted facts so scope of further advice on the subject ends.

K Rajasekharan (Expert) 27 June 2020
It seems the question here is how to account a personal loan you gave to a friend and its repayment to you, for calculating income tax.

When you pay an amount to your friend as loan you are paying it from your own already assessed income, which had already come within the purview of income tax assessment. Your subsequent payment or its repayment to you, from that income is a “zero sum game” for the purpose of income tax.

When you originally credited Rs 5 lakh into your account, then income tax came into play and that income would be assessed for income tax. But any further transaction with that money, if it does not generate any added value such as interest, does not come within the purview of the income tax.

In short, income tax would be calculated only for income and not for loan repayment.

Message likes : 1 times

P. Venu (Expert) 27 June 2020
The only query raised by the author has been the "implication of the Income Tax Scrutiny of the Bank A/c stmt" on the stated transaction with his friend. Learned expert Mr. Rajasekharan has given the meaningful suggestion based on the legal elements inherent.

There is nothing in the provisions in the Income Tax Law that prevents a person helping his friend. It is such activities that sustain the Society and it could never be the objective of any Law in suffocating honest and benign dealings among the citizenry. After all, Laws are the compendium of principles that bind the Society and it amounts to overreach if the provisions of Law understood or interpreted to be tentacles placed in the common man's path.

As such, there is no impediment, legal or otherwise, in the author advancing the fund to his friend.

Rajendra K Goyal (Expert) 27 June 2020
Further guidance can be provided on receipt of asked information from author.

Sudhir Kumar, Advocate (Expert) 27 June 2020
Be clear that you are not getting the money back. So give that much money whose loss you can bear that too after mortgage of land in your name or else give it purely as charity.

First of all relatives do not return money. You feel that you will get refund from a KISAN. Forget they always plead less and uncertain income and do not worry about litigation.

P. Venu (Expert) 27 June 2020
The author's query is confined to the "implication of the Income Tax Scrutiny of the Bank A/c stmt" and there is not even a whisper of his fears or worries as to his defaulting payment.

It is preposterous to suggest that the KISAN or the common man in our country ought not be trusted in financial dealings.

Sudhir Kumar, Advocate (Expert) 28 June 2020
Money given to friends and relatives is always a charity in the garb of loan which is given in expectation of refund but always taken with intention of non-refund.

Such loan is taken by a person:-

(i) Who lacks business sense and cannot raise funds out of his own business and suddenly wants to be rich.

(ii) who cannot raise bank loan because :-

Either
he himself is not creditworthy

Or
the purpose for which he seeks loan is illegal

or
the purpose for which he seeks loan is not at all commercially viable.

(iii) Who knows he can afford not to refund.
(iv) Who trusts his thick skin
(v) Who intends not to refund
(vi) Who has made fortification against action of refund.

So he has to find someone who can part with his money. So he finds a lender near him (friend or relative)

Such loans are given by the persons :-

(i) Who has surplus money.
(ii) Who displays and boasts of such surplus money.
(iii) Who stupidly believe that there will be a refund.
(iv) Fails to realise as to why he alone (not bank) is being contacted for loan.
(v) Who has extreme trust on the debtor
(vi) who are either stupid or extremely greedy of the unusual (or illegal) rate of interest.

Such loans are always given

(i) Without documentation.
(ii) Without witness
(iii) Without guarantor.
(iv) During cordial relations

Soon after giving such loan :-

(a) Relations are no more remain cordial
(b) Business started by such money (easy money belonging to other) invariably fails.
(c) Such loans always sink and not refunded.
(d) Person seeking such refund suffers at legal process.
(e) Person seeking such refund legally or by persuasion is socially criticised.

P. Venu (Expert) 28 June 2020
With due apologies to learned expert Mr. Sudhir Kumar, it is stated that the above proposition has no basis in common knowledge or the collective conscience of the Society. Moreover, it is my considered opinion it is not objective of this platform to sow distrust between two trusting friend. On the contrary it should be our mission further deepen the trust by suggesting the legal elements that could leaven the crevices.

It is the trust among the citizenry that provides morality to law and it is morality that makes the law possible.

Rajendra K Goyal (Expert) 28 June 2020
Fully agree with the practical views from expert Sudhir Kumar .

Sudhir Kumar, Advocate (Expert) 28 June 2020
It is hard truth that relatives do not return money.

It is hard truth that KISAN always plead less income and uncertain income.

The person who he is going to lend money is relative as well as KISAN.

This person can be advised (if keen to lend money) that land be mortgaged in his name only then he can hope (only hope not sure) of refund. Or else let him keep his money in his purse. This way he can maintain relations with relative or else he looses money and relation both.

Guest (Expert) 28 June 2020
Statements of Mr.Sudhir Kumar is real and practical and the fact of what is happening..

Rajendra K Goyal (Expert) 30 June 2020
It would be better to refuse at this stage rather to break relation at later stage. Or obtain full tangible collateral for the amount given.

P. Venu (Expert) 30 June 2020
The integrity of this platform and the stature and dignity of those expressed as "experts" requires that suggestions posted should not be and ought not be officious, esp. on aspects touching upon their privacy and personal affairs. After all, it is the settled that "right to privacy" is an integral element of right to life.

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