Clarification regarding benami property

Dear Experts, My father is farmer in the last years. He is not a tax payer. He plans to buy a property in my mother's name. He has his savings in bank FDs which account for almost 60% of property value. Rest 40% I will be contributing through transfer to father's account. I'm salaried tax payer. Question 1:In this scenario; if he pays for the property & registers the property in my mother's name, will it be termed as Benami Property ? [IT will get to know the transactions, as we'll be paying 1% TDS] Question 2: Will my mother [no income] be asked to provide source of income ? Can my father show that those are his savings from agriculture income & it is exempt for income tax ? Question 3: Do I have to make some gift deeds for transferring 40% amount to father's account ? Thanks a lot for your answers. Arjun
Replies (6)

Why both of you do not transfer your capital from your accounts to your mother's account (can be loan/gift) by banking channel; and then purchase the property through cheques/DD etc. drawn on your mother's account itself?

Dear Sir,

thanks for reply. the reason why we didn't transfer amount to mother's account is, we thought if there's any scrutiny in future, they may ask, source of income for my mother.

Are there any tax implications if we gift amount to my mother ? do we need to do notary document for such gift or simple NEFT/Cheque transfer is ok ?

T&R,

Arjun

A gift deed on plain paper with two witnessess along with transfer by cheque/NEFT (duly mentioned in deed) is sufficient.

That is the source of the capital for mother. For you and your father, I think, it is quite explainable.

Dear Sir,

thanks a lot for answer. it is clear & we'll do as per your advice.

T&R,

Arjun

Perfectly explained by Mr. Rambhia. I will add following points: 

  1. If you do this transaction without proper gift deed procedure as suggested by Mr. Rambhia, there is a clear case of your share of investment in your mother's name being treated as benami property - so, it is not worth the risk. 
  2. Now, when you execute a gift deed, note that you LOSE your right completely over that money. This means, you are not a joint owner of the property and neither you/legal heirs will have any share over that property. Also note that gift deed once signed and accepted by donee (in your case, your mother) can not be revoked. There is a small chance that at a later point, your legal heirs (wife, children) may challenge this gift - to avoid such a situation, I will also advise you to get the gift deed registered especially if amount is big.

Thanks!

Dear Sir, thanks a lot for answer. we'll do as per your advice. T&R, Arjun

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