After the currency demonetization drive to curb black money, the next focused initiative of the government is tracking benami transactions and punishing the tax evaders.
Benami Transactions –
The benami transaction is any transaction in which property is transferred to one person for a consideration paid by another person with a purpose of evading taxes. The real beneficiary is not the one in whose name the property is purchased but just a mask of the real beneficiary.
What isn’t a Benami transaction?
1. Property held under the name of spouse or child, for which the amount is being paid through a known source of income.
2. A joint property with brother, sister or other relatives for which the amount is paid out of known sources of income.
3. Property held by someone in a fiduciary capacity; that is, transaction involving a trustee and a beneficiary.
This means, by law, if you buy a property in name of your parents, too, can be declared as benami.
What falls under benami transaction?
Assets of any kind — movable (vehicles), immovable (land, building), gold or financial securities (shares, fixed deposits, bonds)
Statutory Provisions:
The NDA government has amended the earlier Benami Transactions (Prohibition) Bill, 2011 to make it stricter to be known as The Benami Transactions (Prohibition) Amendment Act, 2016 which has been implemented since 1st November, 2016
Consequences for Violation:
1. Those found guilty of having violated the provisions of the proposed law face rigorous imprisonment for a term not less than one year, but which may go up to seven years, along with a fine which may extend to 25 per cent of the fair market value of the property.
2. If any person who is required to furnish information under this Act knowingly furnishes false information, he/she will face rigorous imprisonment of not less than six months, but which may extend to five years, along with a fine of 10 per cent of the fair market value of the property.
Suggestions on tax planning and compliance:
1. In case the properties are being registered in the name of spouse, children by the individual with source of funds –
2. while filing tax returns, any rental incomes/ capital gains etc should be better clubbed under your tax return u/s 264 (Clubbing of Incomes). The impact (additional tax) would be to the extent of standard deduction not claimable, when the income is clubbed
3. While registering similar transactions in the name of your parent/parents, be a joint owner
EcoFin Blogger (Bikash Prasad) 