Penalties and Taxes on Benami Properties

Benami Properties,

The common meaning of benami in Hindi is “without a name”. Hence, properties which people purchase but not under their own name are termed as benami properties.

Benami property also involves property purchased under the title of the spouse or children or a joint property with brother, sister or any other relative for which the amount is paid out of unknown sources of income. Rather than accumulating black money in cash, people buy property under somebody else’s name to save tax and circulate their black money. This hinders the growth and development of the country due to avoidance of a large amount of taxes.

What are the penalties for benami properties?

  • Benami properties carry penalties, not only under the Benami laws but also under the income tax laws.
  • In 2016 an effective law has been put in place to deal with Benami Properties through ‘Benami Transactions Prohibitions Amendment Act, 2016.
  • When a property is bought under the name of a person who does not pay for it, normally, such transactions, subject to certain exceptions, are treated as Benami transactions under the Benami laws.

Taxes and Penalties on benami properties

  • For those with established income, the maximum rate of tax that you pay is 30 %. However, investments made under benami names will be taxed at a flat rate of 60 %.
  • Moreover, the person has to pay a tax of 25 % and education cess at 3 %, on the amount taxed.
  • The tax liability will come to 83.25 per cent of the value of such investments after taking into the record all the taxes and extra charge.
  • Besides the tax accountability, a person is also liable to pay interest, for not paying the tax in advance and the lag in the filing of tax returns, in case the return was filed late on the tax thus required to be paid.
  • Along with the tax and interest, the owner is also liable to pay fine/penalties at the rate of 10 % of the tax payable.
  • Thus, the tax implication combined with interest and fine would be more than the actual worth of the property.

Income tax implications for the beneficial owner (who actually paid consideration)

At times, people pay a sum of money to buy a property in India, and they don’t want their identity revealed. In the case they make investments under someone else’s name. The funds used for such purchases are from unknown sources and not from the known income of the person making the investments. Such events are covered under the Benami laws.

Income tax implications for the benamidar (in whose name benami proper is standing)

  • Benamidar is the actual owner of the property. Thus, he shall pay the tax on the income that rises from the benami property.
  • Besides, the benamidar can also be charged for concealing of facts before the tax authorities and for giving misstatement and therefore becomes liable for penalty as per the provisions of the Income Tax Act.

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Penalties and Taxes on Benami Properties

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