Oral family settlement does not require registration
2) all three legal heirs have to sign the memorandum
3)sign memorandum in presence of 2 witnesses
4) if immovable’ property is included register memorandum
5) no need for written loan agreement
Oral family settlement recorded through memorandum
Hi, My father expired recently without leaving any will. My mother, my married brother and myself (married daughter) are his only legal heirs. We want to do an Oral family settlement (recorded through memorandum) in order to resolve conflict between us. The conflicts are as following:- 1. My mother started borrowing money for her sole proprietorship business from me about 6 years back through several online banking transactions. Every year she also keeps returning some principal amount back and pays annual interest on outstanding principal amount too. Now since there is no written agreement there is a dispute on the total outstanding amount that she needs to pay me in order to settle the loan. As per her Rs. 23.5 lacs are remaining and as per my understanding this is less amount - about 5 to 6 lacs short. 2. I gave Rs. 6.5 Lacs (single online transaction) to my late father as loan. No interest has been paid on this loan so far. Now to repay this loan there is a disagreement as to how much interest needs to be paid to me for this loan by my mother and brother. Also, there is a PPF account of my late father from which my mother as a nominee received a sum Rs. 30 Lacs (approx.) We, the 3 legal heirs would like to settle the dispute through Oral family settlement (recorded through memorandum) as following :- I would receive Rs 23.5 Lacs as repayment towards outstanding loan from my mother. Also I am willing to let go my interest on Rs. 6.5 Lacs loan given to my father and just will receive 6.5 Lacs from my mother. In return my mother and brother would give me Rs 15 Lacs out of the total PPF amount received. So the total payout of Rs 45 Lacs would be given to me from my mother's account to settle all disputes. My queries: 1. As per my understanding there is no need to register an Oral Family Settlement that has been recorded through memorandum - is this correct? 2. Does above contribute to a valid family settlement? Do all 3 of us need to sign it or just my mother and myself? 3. Would there be any capital gain tax applicable on transfer of Rs 45 Lacs from my mother's account to mine? 4. Is there any mandatory requirement for witnesses to sign this agreement? 5. There is one immovable property (plot of land) which is going to be divided between the 3 legal heirs equally. Would this settlement affect this property, as we haven't included it in the family settlement as there is no dispute on this? 6. For both 23.5 Lacs and 6.5 Lacs loans there are no written loan agreements. Is there a need for loan agreements for income tax purpose or would this memorandum of settlement suffice?
Asked 3 years ago in Property Law
Religion: Hindu
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10 Answers
1. If the so called oral family settlement is reduced to writing then it is pertinent that the deed is executed by a registered deed otherwise it is not enforceable.
2. If there's a settlement among family members then all the members to the settlement have to sign the settlement deed.
3. This is distribution of PPF amount and not a capital amount.
4. Without witness attesting the deed, may not be recognized as legally valid.
5. Include that immovable property also in the family settlement so that you don't have to execute a separate partition deed.
6. Agreement in writing is not essential for loan so long the borrower acknowledges the loan.
1. No registration necessary for Oral Family Settlement.
2. Valid family settlement with all three signatures, or power of attorney if any party cannot sign.
3. No capital gain tax applicable on transfer of Rs 45 Lacs.
4. No witnesses necessary for the agreement.
5. Oral family settlement does not affect immovable property.
6. No loan agreements necessary for income tax purposes.
If it states about transfer of immovable property and it's rights registration is mandatory
In settlement all paries has to sign in whom the rights are given and received along with other legal heirs in property
Yes if it's related the property and capital gain has been accrued by you. Otherwise no.
Yes 2 witnesses.
Then that property will not be a part in the settlement
That's depends on your earlier understanding between parties to loan
1. registration is not compulsory
2. yes it is valid. Better all 3 sign
3. i dont think so. the loan principal being repaid will not be your income. but the 15 lacs out of the ppf account being paid to you would be included in 'income from other sources'. you would have inherited 10 lacs from the 30 lacs ppf amount. so on that 10 lacs i dont think there would be any tax. however on the excess 5 lacs there would be tax implications. consult a professional CA too
4. not mandatory. but better if the signing of the document is witnessed by witnesses. at least 2
5. no it wont be affected
6. not required. the deed will suffice.
Thanks a lot for your valuable inputs. Someone told us that family settlement can only be for division of joint property. The PPF money of my late father that the 3 legal heirs inherited clearly comes under that definition. But the 23.5 lacs loan is between my mother and me, but we have included that in the family settlement because of the dispute in it. Is this fine or does it make the settlement invalid?
Asked 3 years ago
It would not make settlement invalid
it is ok because everything is being done mutually and by consent
the settlement of the loan part as described in the deed will bind you and your mother
your brother being a party to the deed in which the above loan transaction is being settled, will ensure that there is no aspersion or allegation in the future that your mom was made to pay that 23.5 lacs to you on account of undue influence, force, pressure, etc.
it is right that technically the loan transaction was between you and your mother, with which your brother would have no concern
but since the transaction was not reduced to writing, it is better that the loan settlement also happens in the family deed, so that in the future there is no problem or issue from your brother's side against your mom paying you Rs. 23.5 lacs towards full and final settlement of the loan
when it comes to family settlement/arrangement mutually, one must not be hypertechnical and a little fair play in the joints is absolutely fine
the deed will clearly record the rights and obligations of the parties, so it matters least that your brother is not concerned with the loan transaction between you and your mom
It's your wish to include it or not
The family settlement deed can have the recitals about the the other issues of concern within the family members and the solution arrived therein for them.
Therefore if the loan settlement is also a part of settlement towards other properties then there is no legal infirmity by including it in the settlement deed.
Dear client,
As per Indian law, oral family settlements are recognized and valid, but it is advisable to have a written document recording the terms of the settlement, signed by all parties. However, there is no requirement to register such a settlement.
The proposed family settlement appears to be valid as long as it is entered into voluntarily by all parties, with the intention to resolve all disputes and settle all claims. All three legal heirs should sign the memorandum of settlement to avoid any future dispute.
The transfer of Rs. 45 lacs from your mother's account to your account may attract capital gains tax if the source of the funds is from the sale of any capital assets, such as shares, real estate, etc. However, if the source of funds is from any other income such as rental income, interest income, etc., then it would be taxable as per your income tax slab rate.
There is no mandatory requirement for witnesses to sign the agreement. However, it is advisable to have witnesses to avoid any future disputes.
As the plot of land is not a subject matter of any dispute and is to be divided equally among the three legal heirs, the family settlement would not affect it. However, it is advisable to clearly mention in the family settlement that the plot of land is not a subject matter of dispute and is to be divided equally.
Though there are no written loan agreements, the memorandum of settlement could suffice for income tax purposes, as long as it clearly mentions the details of the loans and their repayment terms. However, it is advisable to have proper loan agreements in place for clarity and transparency.
