r2i forum

I was wondering if there are any issues to pay money from an NRE account for the purchase of a car in the relatives name.
The amount involved is 4 lakhs. A couple of issues I can think of are
1) Since the payment is directly made to the dealer, would there be any Income tax issues for the relative in India
2) I guess uncle Sam is not bothered about the transaction.

Is it a loan or a gift? Cannot be both.

If loan, interest income is taxable.

If gift, and donee is a "relative" as defined by Sec 56 of Indian IT law, then there are no India tax consequences. Cousin is not a relative as defined in Sec 56 - gift to such a person would be added to the donee's (recipient's) income per Indian tax law - unless it is a gift on the occasion of donee's wedding.

Parents, children, spouse, grand parents, grand children, uncles and aunts (i.e. brother or sister of parents) and their spouses are "relatives" per Sec 56 and gifts to such people will not attract India tax. Verbatim definition of relative per Sec 56 is reproduced below:

For the purposes of this clause, relative means
(i) spouse of the individual;
(ii) brother or sister of the individual;
(iii) brother or sister of the spouse of the individual;
(iv) brother or sister of either of the parents of the individual;
(v) any lineal ascendant or descendant of the individual;
(vi) any lineal ascendant or descendant of the spouse of the individual;
(vii) spouse of the person referred to in clauses (ii) to (vi).

Uncle Sam would come into the picture if gift amount exceeds $12K.
That amount is given to dealer is not going to provide cover - substance takes precedence over form.

#1:

If intended recipient is a relative as defined in Sec 56, better to write a cheque directly in favor of relative - there will be no India tax consequences - and let the relative pay the dealer.