Benami law, tax risks for property in relative’s name explained

Buying property in a spouse’s, child’s or parent’s name is a common family financial planning strategy, but it can attract tax scrutiny if the person funding the purchase is different from the one on the sale deed. Both Livemint and Business Standard report that while a family relationship does not automatically make a transaction illegal, authorities examine the source of funds, the financial capacity of the registered owner, and who controls or benefits from the asset.

Section 2(9) of the Prohibition of Benami Property Transactions Act, 1988, provides exemptions for purchases in the name of a spouse or child if funds come from the buyer’s known income sources. Joint purchases with siblings or lineal ascendants/descendants are also allowed if the funding party is a named co-owner. Transactions involving cousins or friends fall outside these exemptions and require caution. If an arrangement is found benami, the property can be attached and confiscated, with prosecution and penalties. Buyers are advised to maintain sale deeds, bank transfer records, and proof of income to establish legitimacy.