Benami Property: Law, Exceptions & Penalties

What you need to know

A benami transaction is one where property is held in one person’s name but paid for by someone else who is the real beneficiary. The Prohibition of Benami Property Transactions Act, 1988 — substantially amended in 2016 — allows such property to be confiscated by the government and provides for imprisonment and fines. Buying in a spouse’s or child’s name from your own known income is expressly permitted.

What is benami

• Property held by one person while the consideration is paid by another, for the payer’s benefit.
• Property held in a fictitious name.
• Property whose owner is unaware of or denies ownership.
• Property where the person who paid cannot be traced or is fictitious.

Not benami (exceptions)

• Property in the name of your spouse or child, paid from your known sources of income.
• Property held jointly with your brother, sister or lineal ascendant/descendant, paid from known sources.
• Property held by a Karta or member of an HUF for the family’s benefit, from known sources.
• Property held in a fiduciary capacity — trustee, executor, partner, director, depository.

Penalties

Joint home loans and benami

• Pay your share of the down payment and EMIs from your own bank account.
• Keep ownership shares consistent with contribution, or document gifts to a spouse/child.
• Co-borrowers who are also co-owners can each claim tax benefits — this is the cleanest structure.

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