A Reddit user recently shared a proposal from a family member to take a ₹20 lakh loan to help register a ₹1.3 crore property. Financial experts caution that this arrangement carries significant risks, including severe impact on the user’s credit score, tax liabilities, and legal accountability for the unexplained funding gap of the remaining ₹1.1 crore.
A recent discussion on a personal finance forum has highlighted the substantial risks involved in proxy loan arrangements. A Reddit user revealed that a cousin, whose home loan application was rejected due to documentation and KYC discrepancies, requested that the user take out a ₹20 lakh loan to register a ₹1.3 crore property in the user's name. The cousin proposed covering the Equated Monthly Installments (EMIs) and transferring the property ownership back to themselves after the loan is repaid.
Financial experts emphasize that such an arrangement transfers the entire legal and financial burden to the person whose name is on the loan and the property deed. If the cousin fails to make EMI payments, the responsibility falls entirely on the loan holder, which can lead to a severe and long-term negative impact on the user's credit score and future borrowing capacity.
Beyond credit risk, there are significant tax and legal concerns regarding the funding of the property. The proposed ₹20 lakh loan covers only a small portion of the ₹1.3 crore property value. This leaves an unaccounted funding gap of ₹1.1 crore. Analysts warn that the source of this remaining capital must be transparent. If funds are routed through questionable channels or if the transaction is not properly documented, it could trigger scrutiny from tax authorities. Furthermore, unless the cousin is classified as a 'relative' under current tax laws, any financial exchange or property transfer could attract unexpected tax liabilities and penalties.
Legal experts also note that by registering the property in their name, the user effectively becomes the legal owner. This implies they are responsible for all property-related taxes, maintenance, and potential legal disputes that may arise. If the property title is contested or if there are issues with the registration, the person whose name is on the deed bears the risk. Financial professionals generally suggest that maintaining clear boundaries in financial matters, particularly involving large-scale property transactions, is essential to protect one's personal financial health and avoid becoming entangled in complex liabilities.