If you have unexplained cash deposits or are unable to explain the source of investments made in your name, then be prepared for your deposits and investments to be treated as benami. In fact, according to sources, the Income Tax Department is now scanning the tax filings of individuals and corporates to ascertain unexplained credits and might even invoke the Benami Act wherever required. Not only this, many other types of transactions and investments are also under the income tax lens now.
For instance, the tax department is scanning the records of the property exceeding Rs 30 lakh in value and in cases where the transaction value is not matching with the tax profile of the individual, the department may initiate the inquiry under the Prohibition of Benami Property Transactions Act, 1988 (PBPT Act). However, there are chances that the property may become benami for a few technical reasons also, like when you are not a joint owner of the property you have purchased for your brother or sister.
Keeping this as well as other developments in view, it is in your own interest not to get involved with any deposit, investment or transaction which can not be explained or which doesn’t match with your tax profile.
What is a Benami Transaction?
A benami transaction is a transaction where the legal owner and payer of a property transaction are two different persons. As per the revised provisions, a Benami transaction is:
1. A transaction where a property is transferred to or held by one person for direct or indirect, immediate or future benefit of another person, who has provided or paid the consideration, except when
i.) An HUF is purchasing a property in the name of a Karta, or any other member from known sources;
ii.) A person is holding the property in a fiduciary capacity (e.g. trustee, executor, partner of a partnership firm, director of a company, a depository participant, etc.);
iii.) An individual is purchasing a property in the name of his spouse or any child, provided the consideration is paid out of the known sources;
iv.) Any person is purchasing a property in the name of his brother or sister or lineal ascendant or descendant, where he is one of the joint-owners, provided the consideration is paid out of the known sources;
2. A transaction carried out in a fictitious name; or
3. A transaction where the owner of the property is not aware of or denies knowledge of such ownership;
4. A transaction where the person providing the consideration is not traceable or is fictitious.
Thus, “any transaction where possession of any immovable property is taken as a part performance of a contract is not a Benami transaction if the contract is registered and consideration as well as stamp duty have been paid,” says Akhil Chandna, Director, Grant Thornton India LLP.
It should also be noted that property would include asset of any kind, whether movable or immovable, tangible or intangible, and includes rights or interest as well as proceeds from the property. Keeping the above in view, here we are taking a look at some types of investments and transactions which are benami and can get you into trouble under the Benami Act:
1) A non-resident Indian and a resident of Australia gifts Rs 1 crore from his NRO account to his resident brother, who further invests in mutual funds, equity shares of listed company etc. in his own name as a single owner in India, with an intention to return the gift amount to his brother in future. This is a benami transaction.
2) An Indian resident, holding a PPF account of Rs 20 lakh in the name of his granddaughter, who is a non-resident Indian and a resident of the US, as a single owner is a Benami transaction. Also, it is not legal as NRIs are not allowed to open a PPF account.
3) Mr. A, an NRI from the UK, purchased a property for Rs 4 crore in India. The payment of Rs 1.6 crore was made unofficially in cash and Rs 2.4 crore was made officially by cheques. However, only Rs 1 crore was paid from his bank account and balance Rs 1.4 crore was paid in cash to the builder who arranged cheques of unknown persons. “The documentation includes cheques’ information (cheque number, date, amount) of total Rs 2.4 crore paid for the property. For the registration, stamp duty payment, as well as in all correspondence and documentation, Rs 2.4 crore was used as official consideration of property, which was purchased in his name. This is a benami transaction as Rs 1.4 crore was paid from Mr. A’s un-known sources/ bank account,” explains Chandna.
4) An Indian resident invested Rs 10 crore in a bank FD in the name of his married daughter, who is a Singapore resident. If she has no knowledge and denies ownership of the FD, then it is a benami transaction.
5) Being unable to explain the source of investment
The Income Tax Department has recently said that it is scanning the tax profiles of all property registrations above Rs 30 lakh. “The inquiry is being done under the provisions of the Anti-Benami Act and if these profiles are found suspicious or incorrect, action will be taken. What this means is that if you are not able to explain the source of investment made in your name, then you carry the risk of your property being traded as benami,” says Chetan Chandak, Head of Tax research, H&R Block India.
6) Not buying property in your own name
Also, when you have purchased the property in the name of your brother or sister or lineal ascendant or descendant or any other person, but you are not joint owner of such property with that person, then also the property may be declared as benami. To avoid this, technically you should be joint owner in the property document or a gift deed should be executed in favour of the person in whose name the property is registered.
7) Unexplained cash deposits
If you have unexplained cash deposits or credits in your account, and you are unable to explain their source to the Income Tax Department, then also you carry the risk of those deposits or credits being declared as benami.
It may be noted that these are only some types of benami deals and transactions and many more types of transactions can come under the Benami Act now.