PERSONAL FINANCE: Keep tax records handy before selling property

Government can seek additional details from sellers, writes TINESH BHASIN

When you sell a property next time, expect a letter from the Income-Tax (I-T) department, asking you to explain when you acquired it and the source of funds. This could be one of the ways the government could zero in on benami property holders.

Lawyers say that earlier it was usual practice by the department to call buyers to explain sources of funds whenever someone purchased a house. It’s possible, the department can now call sellers, too.

After the Income Declaration Scheme (IDS), 2016, demonetisation and giving another chance to black money hoarders to deposit cash and pay a penalty, the government is expected to go after people with many properties. In a speech in Goa on November 13, Prime Minister Narendra Modi had said benami properties are next on his radar to eradicate corruption and black money.

Be cautious when helping relatives

A benami property means assets are held by a person but the consideration for these has been paid by another. There are, however, exceptions. You can pay for a property that’s entirely in the name of your spouse or children. But, you cannot pay for a property that will be in the name of your siblings, parents or any other lineal ascendant or descendant, unless you are a joint owner. That applies even if the money is legitimate. But, there is a way out. Tax experts say an individual can buy the property in his name and later gift it to the close relative. It will be more expensive as the person will need to transfer the ownership through a gift deed and pay stamp duty.

If the property is held by a ‘karta’ of a Hindu Undivided Family and individuals who have fiduciary responsibility such as trustees, executors, partners, directors of companies and others, the asset will not be considered benami.

Under the Benami Transaction (Prohibition) Act, ‘property’ has been defined comprehensively to include not only immovable assets such as land, flat or house but also movable assets such as gold, stocks, mutual fund holdings and even bank deposits. One significant change is that it covers the conversion of the property, which was not covered in the old law. If the property is sold, then the proceeds from it are also considered benami.

The government knows

Real estate is the biggest area where many channel their black money. This is done using various methods. Property is bought in the name of close relatives or even servants or drivers to evade detection by tax authorities. “Typically, individuals with black money buy large tracts of land that can be developed in the future or they buy high-end properties,” says Amit Oberoi, national director, knowledge systems at Colliers International (India). While there’s no exact figure on the number of benami transactions, experts feel that it would be 25-30 per cent of all highend property sale. In the case of land, it could be higher.

To tighten screws on such transactions, the government has taken many initiatives and is sitting on a huge data repository. Explains Neha Malhotra, executive director at Nangia & Co: The Centre has revised norms making it mandatory for an individual to quote the permanent account number (PAN) on several high-value transactions, annual information filing is required by financial institutions and property registration has been made more stringent. There is also financial information sharing treaties with other countries. “It’s difficult for big transactions to go unnoticed,” says Malhotra. In fact, the department will soon be scanning social media posts of individuals. That’s part of the I-T department’s Project Insight programme.

Based on the information and data available, the government can mine high-value transactions. Suppose someone has bought a property