What possible way unsecured loans can be cleared with no tax

We are joint family and have joint properties . I have 4 brothers and all are married and are blessed with two children's each. I started my business 15 years back (proprietor concern ) by taking unsecured loans from my father , brothers , sister in laws and their children ( as shown in my books ) . Due to internal disputes we have parted ways and now I have to pay the unsecured loan amount. ( I am paying yearly interest and TDS for the same from past 15 years ). As the loan amount sums up to a big amount I cannot pay them from my capital. So I thought to come to an settlement where I will gift my properties to my brothers and sister in laws and in return they will gift me the unsecured loan amount . My question is 
1) is this possible to gift and settle the issue as I don't have to pay any tax amount .
2) can I take a gift from my nephew ? 

3) I have wife and two children's living with me and was thinking to pay little amount of un  secured loans to my brothers , sister in laws in their account and then they give it as a gift to my children's and wife . ( for eg I need to pay 20 lakhs to my brother and I pay it in his account so his name will be cleared from my books and the same he will gift it to my children's 10 lakhs each) this way I will take a unsecured loans from my children's so I need not worry about my capital.( real amount of unsecured loan I will settle through gifting  properties and by giving some cash reserved ).
                          Or
4)  my lawyer suggested me to settle the issue HUF way , where we think our business to be HUF (which is not) and come into an aggrement that as I cannot pay huge sum of amount I give my share of properties to them and they forgo the unsecured loan ( for eg I have to pay my 4 brothers and sister in laws a. Sum of 50 lakhs and we come in understanding that I only pay 30 lakhs by gifting my joint properties to them and they forgo remain 20 lakhs which I cannot pay them ). Now if this happens then what tax burden I will face ? 
                        
5) please suggest the best possible way , also suggest the agreement deed I can use for this type of settlements so future complication of tax is reduced .
Asked 10 months ago in Capital Gains Tax from Guntur, Andhra Pradesh
Dear Sir,

1. It is possible to gift your share of property and settle the issue, but in your case it is an exchange of gifts. So the AO may take a stand that it is actually not a Gift but a Sale of Asset and hence Capital Gain has to be paid. Which is again a debatable issue and will have to be fought out.

2. You cannot take a gift from your nephew, but he can gift it to his father and he can gift it to you.

3. You can route the money back, through your children if you want.

4. Even if you assume it to be a HUF hotchpotch, still it is a clear case of transferring an asset in exchange of waiver of loan. Which can also be termed as a Disguised Sale Transaction. So if you want to adopt this way out, I would advise you to meet a professional who should be in a position to fight it out, if your matter is selected for scrutiny.

Hope this clarifies your query.

Feel free to get back for further clarifications.

Regards,
CA Rohit R Sharma
BCom, CA, LLB - Gen, Cert FAFP.
Rohit R Sharma
CA, Mumbai
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See last time also we suggested that you take the amount as gift and also gift the properties to them without any consideration.

If any consideration is mentioned then it will attract tax. 

For further enquires pl mail at modani005@gmail.com
Shyam Sunder Modani
CA, Hyderabad
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The consideration can be in the form of extinguishment of liability also for transfer of property. However, when you are resorting to cross gifts, you may risk the provisions of IT Act for entering into arrangements to avoid tax. Further if it involves gifts from relatives who are not covered under the definition of relatives, you may also run the risk of deemed income in respect of such gifts in your hands or in the hands of your relatives, as the case may be   Additionally, you may be resorting to under payment of stamp duty in this process. The simple and straight way  is to enter into a sale deed. Thus the transaction will be clean and neat and the successors may not have any problem in establishing their title over the property.

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
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Vishrut Rajesh Shah
CA, Ahmedabad
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