My son wishes to buy a car and wants me to lend him Rs 5 lakh for it. I am in the highest tax bracket. Is this a better option than taking a loan from a bank to buy the car?
Sukhwinder Singh, Chandigarh
If you have the money to give to your son to buy a car, do so as a gift to him to make the transaction tax efficient. You could gift the money to him and he can gift it back to you as per your arrangement with each other. You could also chide him to give you a higher sum in return than you give him as this would actually amount to a soft loan with conveniences that a formal borrowing from the bank would not be. However, if you formalise the arrangement as a loan and state it so, any interest that your son pays you would be added to your income and taxed accordingly.
