Legalities on taking loan from a family member

POSTED BY Harsh ON July 16, 2012 2:35 am COMMENTS (14)

Hello Friends,
My mother is giving me around 5-8 Lacs for the purpose of buying a home from her hard earned savings.
1) I want to know is there any way by which we can legally document this?
2) is there any way by which she or me can save taxes, if i formally and legally declare this as person to person lending on some interest rate?
just for info she is 66 yrs old pensioner and has medical insurance funded by me and living with me and my wife. To be frank with you my purpose is to protect her savings legally, as I am buying house on my name only.
Many thanks in advance
Regards,

14 replies on this article “Legalities on taking loan from a family member”

  1. Pankaj Vasudeo says:

    got it thanks
    emailing you in a minute

  2. Pankaj Vasudeo says:

    Sir ji
    whats ur email address

  3. Dear pankaj, please prepare the loan documents between you & your father on a 100 Rs. stamp paper. if you do want a sample doc. please mail me a personal mail.

    Thanks

    Ashal

  4. Pankaj Vasudeo says:

    Dear Harsh
    I also wanna take home loan from my father
    if possible can you share template or legal documnets wid me
    thanks

  5. Harsh says:

    Thanks to Ashal, Manish and BanyanFA. Much appreciated. You made it very simple for me.

    Harsh

  6. Harsh says:

    Thanks Ashal, Manish and BanyanFA, Its a very useful information for me. I have got a perform from one of my friend in physical format. i have used a loan amortisation excel template provided in MS Office to calculate – in that Interest column I will use for tax deduction and that will be income for my mother. Also thanks Ashal as i was planning to get this done as a cash transaction but now changed my mind and would do a cheque transaction mention chq no on agreement.

    Thanks again everyone.
    Harsh

    1. Dear Harsh, a small tip – please do not pay back any principal amount of your loan to mother. pay only interest part each year. this way the interest benefit ‘ll remain intact & ‘l;l not come down like a normal bank loan.

      For example, if you have taken 10L Rs. loan @ 10% ROI, please pay your mother 1L Rs. every year. This 1L Rs. may be in a single installment or multiple installments spread all over the year.

      Thanks

      Ashal

      1. Harsh says:

        Thanks Ashal, I hope that will not call for some sort of scrutiny from Tax Official, Anyway i am planning for that kind of arrangement only.

        Regards,
        harsh

        1. Dear Harsh, please relax. No0 reason to worry for this interest only thing.

          thanks

          Ashal

  7. BanyanFA says:

    Manish – after your comment I have nothing to add, except a small clarification. The interest paid to the mother can also be claimed as a deduction by Harsh in his taxable income.

    You don’t need a lawyer to write up. Just search on the internet and you will get many clauses. Broadly you want the following :
    1. Who is the borrower & lender
    2. Property address
    3. Amount of Loan, Tenure & Interest. Monthly EMI
    4. Mother shall have right over the property to recover the proceeds in case of default. No need for a formal hypothecation.

  8. Harsh

    You can take loan and give her the interest rate limited to an amount so that her income for the year does not cross 2.5 lacs , thats the limit for her anywyas to pay the tax , so no tax on her income , so the money stays at home itself and you also get tax benefit on the interest part !

    Manish

  9. Harsh says:

    Thanks Ashal, do i need to consult lawyer or is it something I can do it on specific value stamp paper? Please guide me if there is any specific term for this kind of agreement as I am not able to find any agreement format online, probably I am searching the wrong thing.

    Many Thanks again.

    1. Dear Harsh, you can arrange the loan agreement yourself on a 100 Rs. stamp paper. It ‘ll be a general loan agreement, mentioning the details like loan amount, tenure, ROI, ……..

      Signed by both of you.

      Thanks

      Ashal

  10. Dear Harsh, yes it’s possible. Please prepare a home loan document & take home loan from her for a given interest rate say 10% or 12%.

    Please make sure the transaction from her account to your account is routed either though cheque or netbanking.

    thanks

    Ashal

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