Taxes and Penalties Related to Benami Properties
Jun 13, 2018 Legal Guidance
The ‘Benami Transaction (Prohibition) Act’ 1988, was passed to curb and monitor the black money circulation although it was never implemented. Now with the passing of ‘Benami Transaction (Prohibition) Amendment Act’, 2016, an effective law has come into force making sure that it will be difficult for people to register a property under an alias.
Purchasing a property under a false name can have serious implication which can lead to a jail time. Benami properties are not only threat to the actual owner but also the person whose name is on the registry.
Purchasing a property under a false name can have serious implication which can lead to a jail time. Benami properties are not only threat to the actual owner but also the person whose name is on the registry.
Income tax implication for the beneficial owner:
When a purchase is made and the buyer wants to remain behind the curtains and not register in his name, then he might buy it under someone else’s’ name. The funds used for such investments are not from known sources of the income of the person and hence is punishable by the law.
Section 69 of Income tax law covers it. The person, under whose name the property has been purchased, has to get its books verified. The person’s income is also verified before making sure they are capable of investing in the property. The value of the investment is taxed in the same financial year.
However, the income tax officer cannot treat such investments as the income. He will have to give the beneficial owner and the person a chance to explain their side. If the beneficial owner is able to explain the source of investment then the income tax officer cannot treat the investment as the income.
The source of investment can only be explained if it is on record or on the books of the beneficial owner. Making a benami investment is punishable by law.
Section 69 of Income tax law covers it. The person, under whose name the property has been purchased, has to get its books verified. The person’s income is also verified before making sure they are capable of investing in the property. The value of the investment is taxed in the same financial year.
However, the income tax officer cannot treat such investments as the income. He will have to give the beneficial owner and the person a chance to explain their side. If the beneficial owner is able to explain the source of investment then the income tax officer cannot treat the investment as the income.
The source of investment can only be explained if it is on record or on the books of the beneficial owner. Making a benami investment is punishable by law.
Taxes on benami property:
For a regular investment, the maximum tax that a buyer pays is 30 percent. However, the tax implicated on benami property is much higher. The investment made under benami names are taxed flat at 60 percent. The person will also have to pay the surcharge at 25 percent, education cess at 3 percent. After taking into account all the taxes and surcharges, the tax liability will come across 83.25 percent of the value of the investment. The person will also have to pay for the non- payment of the advance on the delay in filing of the tax returns. Also, the beneficial owner will have to pay the penalty of 10 percent of the tax payable.
Income tax implication on the benamidar:
As benamidar is the legal owner of the property, he is supposed to pay the tax on the income that arises from the property. in case where the legal owner has more than one house under his name than all other properties except one is deemed to have been let out. The legal owner will have to show the income from such properties even though he might not have received any. The benamidar is also liable for the hiding of facts from the tax authorities and misstatement and is therefore liable for penalty under the income tax act.
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