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Tax on benami property

A residential property can be purchased in the name of wife or in the joint names of husband and wife . If the property is bought with the funds provided by the husband, but registered in the name of his wife for IT purposes, legally, the wife will not be treated as the owner of the property. Any income earned from the house will be clubbed with the husband’s income for the purpose of income tax to be paid by the husband. Transactions where property is purchased in the name of wife or unmarried daughter will not be considered as benami.

Benami transaction is one by which property is transferred or registered in the name of a person but the consideration is paid by another. It occurs when people want to park their unaccounted money or avoid payment of taxes. By Benami Transactions (prohibitions) Act, such transactions are punishable and all properties held by benami are subjected to Government acquisition without payment of any damage or compensation.

In addition, wife should not buy property by investing the amount she has received as gift from her husband or from her in- laws. However, she can avail loan to make up for the shortage of funds even from the spouse or her in-laws, provided she pays reasonable rate of interest to the loan availed. If the property is sold, the wife has to sign as the vendor. Any taxes arising out of the sale has to be paid by the husband only. If the property is sold within a period of 36 months from the date of acquisition, the profit earned out of sale will fall under short-term capital gains and will be added with the husband’s income.

If the property is sold after 36 months, the gain made will fall under long-term capital gains and capital gains tax has to be paid.

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