Buying Property in a Relative’s Name: Tax Risks and Legal Guidelines

Purchasing a house in the name of a spouse, child, or parent is legally permissible in India. However, when the person funding the property differs from the one listed as the owner, it may prompt investigation under the Prohibition of Benami Property Transactions Act, 1988. The key issue revolves around the origin of funds, who truly benefits from the property, and the intention behind the transaction.

The law draws a line between legitimate family gifts or purchases falling under statutory exceptions and transactions designed to conceal the actual owner or source of money. In cases where a relative’s name is used merely as a cover, serious consequences can follow, including attachment and confiscation of the property.

According to Section 2(9) of the Benami Act, a transaction qualifies as benami if someone pays for a property but another person holds the title with the property intended to benefit the payer. For example, if an individual buys a house in a sibling’s name but continues to control the property and collect rental income, the authorities may scrutinize the deal unless it fits an allowed exception.

Authorities typically examine several factors: the origin of the purchase funds and whether they can be verified, if the registered owner was aware of the transaction, who physically controls the property, who gains from any income generated, and whether legal documentation supports the ownership structure.

Shaurya Mitra Tomar, senior partner at Chugh Universal Legal, explains that the legislation does not forbid genuine intra-family property purchases. Its purpose is to prevent the misuse of family ties to hide undisclosed ownership or unaccounted funds.

The Benami Act does provide defined exceptions. For instance, a person can buy property in the name of their spouse or child using funds from known sources. When the buyer opts to register the property in the name of siblings, parents, or children who are lineal descendants, both parties must be joint owners, and the money must come from verifiable sources. Certain Hindu Undivided Family (HUF) arrangements or fiduciary relationships may qualify as well, but they must fulfill specific legal conditions.

Rahul Hingmire, managing partner at Vis Legis Law Practice, emphasized that family relation alone does not grant immunity. "Kinship alone provides no blanket protection," he said. Families need to demonstrate the transaction’s substance and compliance with applicable laws. Genuine gifts differ from situations where a relative’s name is only used while the payer retains beneficial ownership.

If the source of funds is unclear or unexplained, the property can attract scrutiny under the Income-tax Act. Section 103 of the Income-tax Act, effective from April 1, 2026, allows authorities to treat unexplained investments as income. In addition, if a transaction is deemed benami, the property may be provisionally attached, and after adjudication, confiscated by the government. Prosecution under the Benami Act may also follow.

Gautam S Thacker, advocate at Bombay High Court, noted that income-tax authorities often investigate when property is registered in a relative’s name without sufficient independent income. "If the funding source cannot be satisfactorily explained, the investment may be considered unexplained income," he said.

To avoid complications, property buyers should clarify ownership and funding sources before finalizing the purchase. Informal family understandings may not hold up during disputes or tax inquiries. Alay Razvi, managing partner at Accord Juris, advised that buyers must establish whether money provided by a relative is a gift, a loan, or a contribution toward joint ownership.

Maintaining thorough records is crucial. This includes bank statements, gift deeds, loan agreements, and other documents evidencing the source and movement of funds. Some practical steps to reduce risk include:

• Making payments through traceable banking channels rather than cash or third-party transfers
• Documenting gifts and loans with proper legal agreements
• Ensuring registered ownership reflects the true nature of the arrangement, such as joint ownership when applicable
• Keeping all financial records including tax returns and purchase documents
• Clarifying and documenting the arrangement at the outset rather than waiting for disputes or investigations

Razvi summarized by stressing that all funds should be traceable and consistent with the buyer’s legitimate income, savings, or documented gifts. Registering property under a relative’s name demands more than trust. The source of funds, legal ownership, and actual benefit from the property must be transparent and legally sound to withstand scrutiny.