Family settlement in view of joint properties and unsecured loans

Mine is a sole propetier business and i have taken unsecured loans from family members (family members of father,5 brothers and sister in laws) and paying them interest and tds tax yearly with their individual names.
 We have joint properties together and now we have decided to part aways and we came to a family settlement of partition in a way that i will give my share of immovable  properties to them and in return they have agreed to forgo the unsecured loan amount

Will this be a valid agreement ? 
Will there be any tax implications? 
Any further problems with this agreement? 
Will this Partition deed be valid under HUF?
Asked 10 months ago in Income Tax from Guntur, Andhra Pradesh
Yes this can be a valid agreement. The amount forgone or the government value which ever is more will be treated as the sale proceeds for capital gain purpose.

Since it is not a gift and involves consideration it will be taxable.

Shyam Sunder Modani
CA, Hyderabad
953 Answers
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Dear Sir,

1. Yes, this can be considered as a Valid Agreement, but it will be preferred if you put it to writing than keep it oral.

2. Yes, Capital Gain will be applicable as you are receiving Consideration against transfer of Property.

3. If the agreement is well drafted by a professional then so such inherent problem with such a transaction.

4. Yes. A Partition Deed will be valid for an HUF
Rohit R Sharma
CA, Mumbai
706 Answers
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Dear Sir,

With respect to your quarries please find below answers :

1. The Agreement is perfectly valid in legal terms

2. There will be tax implications in the form of capital gain on foregone part of your share either in exchange of cash or settlement of your outstanding unsecured loans

3. Based on the details furnished by you there will not be any problems except for the fact that you have make this agreement register and make necessary change in land records of local talati in order to ensure that you do not face any problems when you sell this immovable property.

4. Understand that this agreement shall not be constituted as partition of HUF. For the partition of HUF you need to do a separate agreement of the same. Or else you can have all this terms as HUF Partition Deed only and need to submit it to the income tax department in order to dissolve HUF legally.
Vishrut Rajesh Shah
CA, Ahmedabad
220 Answers
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1. Sir the agreement is valid, no problem but since the unsecured loan is foregone for the property  you will be liable to capital gains. If condition is not there then it is exempt.

2. As far as agreement is concerned there is no problem.

3. You can take gift of the amount standing to the account of unsecured loans.only from relatives as defined in Income Tax Act. Then you can gift the property without mentioning the consideration and opt for writing that you are giving the same with love and affection. Then only tax can be saved.
Shyam Sunder Modani
CA, Hyderabad
953 Answers
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Dear Sir,

I dont find a difference in your earlier question and the current one. All of them are sufficiently answered above. 
Rohit R Sharma
CA, Mumbai
706 Answers
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Dear Sir,

1. In your case the agreement shall be valid. But as your HUF do not have any legal existence it can not be Dissolved so it will be more like a family Settlement agreement rather HUF Family Settlement agreement

2. The agreement will be valid for the arrangement of settlement of unsecured loan against share in property.

3. There will be tax implications in the form of capital gain on foregone part of your share either in exchange of cash or settlement of your outstanding unsecured loans

4. Based on the details furnished by you there will not be any problems except for the fact that you have make this agreement register and make necessary change in land records of local talati in order to ensure that you do not face any problems when you sell this immovable property.
Vishrut Rajesh Shah
CA, Ahmedabad
220 Answers
4.9 on 5.0
  Talk to Vishrut Rajesh Shah
The consideration can be in the form of extinguishment of liability also and thus the agreement will be valid. 

The amount agreed to be foregone by your family members towards investment in your firm can be part of your family settlement. 

The HUF can be partitioned and the properties can be transferred to the members of HUF. 

The extinguishment of liability can be your business income, if the liability was created for purchases / expenses in respect of which deduction was allowed in the income tax. 

The better way is to receive money under partition and pay off the liabilities, as extinghisment may result in income u/s 41(1) of the IT Act. 
B Vijaya Kumar
CA, Hyderabad
290 Answers
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