32 Responses to THE BENAMI TRANSACTIONS: Meaning, Analysis and Implications

  1. My son has taken up a job in a foreign country and earlier he has earned in India. He wants to gift his entire savings to us his parents as we are aged and we would like to put it in Mutual Fund in our name for growth as otherwise we have to pay LTCG after 31-01-2018. The amount is nearly 50 Lakhs Kindly advise how he can do it without breaking the law

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      You are allowed to receive gift from your son without limit and the gift would not be taxable in India. Your son may be liable to gift tax based on the gift tax laws of his country of residence. It is recommended to have a gift deed/letter and the gift amount to be paid via bank cheque. Thanks.

  2. Sir, Your reply to the query raised by Mr Vijay Aggarwal in Feb 2018 requires reiteration. If I lend money to anybody for getting more Income than a Fixed Deposit or if I lend money to my relative or friend out of love and affection at a low/reasonable interest and that person buys an apartment or land for his use how does it become BENAMI?

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      If you lend the money for income, whether interest free or low or high interest, it is okay. However, the money is to be used for business purpose and not for investments.There are restrictions for use of money borrowed from NRIs. For residents, there may not be any restrictions but it should be in the nature of a loan with or without interest and not share of profit or any other understanding. Thanks.

  3. Annamalai says:

    I am NRI, my wife is Resident Indian. I gift my money earned outside india to my wife resident account in india.
    She invest in stocks market as she has the passion for it.
    1) Is this a Benami transacation ?
    2) Rs 20,000 or 30,000 sometimes she transfer it from her resident account to my NRO account to repay my personal loan in India, is this Benami transacation ?

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. While gift from husband to wife is allowed, any income would be clubbed into husband’s income i.e. considered as income of the husband. So, while it may not be a benami transaction, it would be considered as your income.
      2. Any investments / transfer between spouse is not considered as benami transaction.
      3. I would advise NOT to make any internal transfers between spouse for simplicity and avoiding any complications as for income tax purposes in India, husband and wife are considered two separate persons and taxed as assessed separately. Thanks.

      • ramesh says:

        If some one (A) has taken 5 lakh rupee from his brother (B) and invested in stock market and made a profit of 11 lakh…..later he (A) gave back 5 lakh to his brother (B) and (A) filed ITR return on 11 lakh as short term capital gain…..Are these are benami transactions…..And if these are benami transactions how it can be resolved as both the persons are not aware of this

        • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

          Not a benami transaction if it is properly recorded in the books of account of both A and B and A files tax return reporting the STCG. Thanks.

  4. ismail alam says:

    sir, my question is if a person buys a property in 2000, the cost of the flat that period being 35 lac on his wife’s name and 2 relative with none of the above a I.T payer the cost now is 2 . 75 cr is the flat falls in benami segment. Mumbai

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. It would depend on the who paid for the property and whether the joint names (relative) in which the property is owned, whether they are beneficial owner or just entered the name as convenience.
      2. It can only be ascertained based on the purchase deed. If silent, it may be considered as beneficial owners too. If beneficial owner, the share of relatives may be considered as benami property.
      3. The investment in wife’s name is allowed and may not considered as benami property. However, it should not be to circumvent the laws and the income of wife would be clubbed in the husband’s income while filing income tax return. Thanks.

  5. Puja says:

    Hello Sir, if I buy an immovable property but does not get it registered in my name and only possession deed (kabja karar) is executed, will the property be considered as a benami property?

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      It would depend on whose name the property is owned. Also, whether you have paid all the consideration. And, if property is in the name of a builder/non-relative and you have paid all the funds, the question would be whether you have paid the stamp duty. A lot of investors, to save stamp duty, pay the price of property but does not register in hope to quickly sell the same to another investor/buyer to make quick money and to save the stamp duty. To discourage the practice, payment of stamp duty is required if you do not want the transaction to be considered as a benami transaction. Thanks.

  6. Dear Sir

    I want to know about following transaction as covered under Benami or not

    1) Mr. A who is Indian Resident give Interest free loan by Cheque/DD/Online Transfer to Mr. B who is also Indian Resident to Buy a Land or Invest in Company/Firm in the name of Mr B.
    Actual beneficiary is Mr. A as matually decided beteen Mr. A & B. But on all the records papers Mr. B is beneficiary. Mr. B will show said investment & Loan in his Balance sheet and Mr. B will pay every tax including Income Tax on income arise on said investment.
    Is above is Banami Transaction
    Is your suggestion will differ if Loan with minimum interest rate as FD rate by A to B

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      Any transaction where the legal owner and beneficial owner are different, it is a benami transaction. In your case Mr. A is the beneficial owner and Mr. B is the legal owner so it is a benami transaction. Rate of interest is immaterial. Thanks.

  7. Prabhat says:

    Sir,
    I wanted to know that ….we had a garage back in 2002 owned by my father and he died in 2003. Then we sold the garage at about 2 lakhs. Then my mother bought a piece of land in locality, I was a child then.
    Now in 2018 she has made athat land a gift deed to me at present rate of about 7 lacs.
    Sir, is that a benami property.??
    Your quick reply will appreciated.

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      If all the transfers have been documented and stamp duty is paid, it is not a benami property. Thanks.

  8. Gopal says:

    Dear sir,

    Its amazing and so informative information u are proving to so many desired persons. thanks. I was just reading the comments and your reply. thanks for every information you have provided and updated.

    I have a question:
    I have FD/House/pension in India, this is the first visit to foreign country with my children. i may not stay here permanently. do i have to open NRO/NRE account for transferring the money abroad or thru exisiting saving bank a/c source, can we do it. If i sell my property in future.
    Thanks for the response in future.
    gopal

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      Only if you are a Non-Resident under FEMA, you are allowed to have NRO/NRE account. As a resident, you are allowed to transfer upto $250,000 per year under LRS – Liberalized Remittance Scheme. I won’t think you would need such high amount every year to pay for exps. The money under LRS can be transferred from your resident bank account. Thanks.

  9. Gouri says:

    Dear Mr.Jigar Patel,
    Thank you very much for the detailed information. Would like to get more information in the case below.
    A relative of mine, who is an NRI, is transferring funds to his parent (who is a resident in India) and parent is investing in equities in India, without knowing that it is a benami transaction. How to correct this? Can the parent transfer the money back to his son’s NRO account without any issues ? Or, can the parent transfer the equities to his son’s demat account ?

    Thanking you in advance.
    Gouri.

    • Gouri says:

      Appending to my earlier post:
      Can my relative or his parent report this directly to income tax authorities that they have done it unknowlingly ? Will the IT authorities give chance of taking corrective measures ?

      Thanks,
      Gouri

      • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

        It is okay provided the money from NRI son to his parent is a gift and not a loan. NRI son is allowed to gift his parents without any income tax consequences. Thanks.

        • Gouri says:

          Thank you very much for your prompt reply.
          Would like to get one more clarification. Parent is investing this money into equities. How to prove that it is not on behalf of his NRI son. If the parent is not mentioning his son as his NRI son as nominee, is sufficient ?

          Thank you,

          • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

            I would recommend to have a gift deed/letter from son to parents. Thanks.

  10. Shiwani Sharma says:

    This is a very informative and helpful post, very honest and practical advise. Thank you so much for a detailed post. It’s very helpful for all .Specially this complete information will be helping to all. Thanks!

  11. Vardhman Jain says:

    This Information really helps me to understand what actually is Benami Transaction.
    And I think no one can give such type of best examples other then you.
    Thank you

  12. Majid says:

    Dear Sir,
    Thanks for detailed information.
    I would like to know further,
    If a seller is not accepting money from an NRI account and buyer is paying money to seller through buyer’s brother bank account and getting registration of land on buyer himself as NRI.
    Is it also to treated as non benami transactions.
    Waiting for your advise.
    Regards

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      I think this may be a classic case of a benami transaction if both brothers are not the joint holders of the property. Also, I haven’t heard any seller having restrictions of accepting funds from NRI account. Thanks.

  13. Vasanth H says:

    Additional information

  14. Rajneesh says:

    Thanks for your wonderful articles. Really impressed. I am USC living in India for last 9 years. I have joint demat (with parents) with shares worth Rs25L. Most of the shares were purchased by my father 20-25 years ago. Cost price unknown as physical shares were converted to demat long time ago & there could be shares given under rights issues by companies.

    I had purchased some (may be Rs2 lakh) in last 9 years. I wish to gift my parents the shares as most of it is their money. Can I transfer the shares to their demat? Will the gift be ok with India and US considering the limits for gift as per US law and considering the new benami law?

    • Jigar Patel, CFA (USA), MBA-Finance (USA), CPA (USA), CA (India) says:

      1. In India, there is no tax on gift received by close relative so is a tax exempt gift for your father and you.
      2. For USA, as the value of investment is 25L i.e. more than $14000, as a US citizen, it is above the threshold of gift tax. So, you would have to pay gift tax in USA. However, if you make a declaration to be counted as a part of your lifetime gift (estate duty limit), there won’t be any tax to you. I would assume that you have reported your Demat account in your FBAR/FATCA compliance requirement. Else, how can you give gift of money that you did not own? Thanks.

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