There are plenty of legitimate reasons to buy property in someone else's name. Maybe you want to register a flat in your wife's name for stamp duty savings. Perhaps elderly parents want to buy in their child's name to avoid succession hassles. Or you're an NRI buying through a family member's name because you can't be present for the process. Whatever the reason, Indian law allows it — but with specific rules and tax implications you must understand before proceeding.
Why People Buy Property in Another Person's Name
The most common reason is tax planning. In many Indian states including Madhya Pradesh, women get a discount on stamp duty — typically 1-2% less than men. On a ₹40 lakh property, registering in your wife's name can save ₹40,000-80,000 in stamp duty alone.
Parents often buy property in their adult children's names to simplify future inheritance and avoid the complications of will execution, succession certificates, and potential disputes among heirs. It's a form of estate planning that's widely practised across India.
Some buyers use a trusted family member's name when they don't want the property directly in their own name for professional or financial planning reasons. Government employees, for instance, sometimes prefer properties in a spouse's name to avoid scrutiny related to income-asset declarations.
Business owners might buy residential property in a family member's name to keep it separate from business assets, protecting it from business-related liabilities. This is a legitimate asset protection strategy as long as the income source is clean and documented.
The Legal Framework — Power of Attorney and Gift Deed
If you're paying for the property but registering it in someone else's name, the legal route depends on the relationship and intent.
Direct purchase in another's name: You can simply fund the purchase and have the sale deed registered in the other person's name. The seller doesn't care who pays — they care about who signs the sale deed. However, you'll need to handle the tax implications of this arrangement (more on that below).
Power of Attorney (POA): If you want to buy property but can't be physically present, you can grant a POA to a trusted person to execute the purchase on your behalf. The property is still registered in your name, but someone else handles the paperwork. A POA can be General (broad powers) or Special (limited to specific transactions). For property purchases, always use a Special POA — it limits what the agent can do.
Gift Deed: If you buy a property and then want to transfer it to someone else, you execute a registered gift deed. This is common for parent-to-child transfers. The gift deed must be registered at the sub-registrar's office with applicable stamp duty. Gifts to close relatives (spouse, children, siblings, parents) are exempt from income tax for the recipient under Section 56(2) of the Income Tax Act.
Tax Implications You Cannot Ignore
This is where most people get tripped up. The Income Tax Act has provisions to prevent misuse of property registration in others' names.
Clubbing provisions (Sections 60-64): If you buy property in your spouse's or minor child's name, any rental income from that property is "clubbed" with your income and taxed in your hands. This means you can't reduce your tax liability by simply registering a rental property in your wife's name — the income comes right back to you.
Gift tax implications: If you buy a property worth ₹50 lakh and register it in, say, a friend's name, the friend is deemed to have received a gift of ₹50 lakh. Under Section 56(2), gifts above ₹50,000 from non-relatives are taxable as income. So the friend would owe tax on ₹50 lakh as "income from other sources." For close relatives (as defined in the Act), this exemption applies and no gift tax arises.
Source of funds: When property is registered in someone else's name, both parties need to be able to explain the source of funds if questioned. The buyer needs to show the money trail, and the registered owner needs to explain how they "acquired" the property. Clean documentation is essential — bank transfers, not cash.
Capital gains on future sale: When the property is eventually sold, the registered owner is liable for capital gains tax, even if they didn't pay for it. This can complicate things if the registered owner is in a different tax bracket or if the relationship has changed by then.
Step-by-Step Process
- Decide the legal structure — direct purchase, POA, or gift. Consult a property lawyer.
- Verify the registered owner's eligibility — minors cannot be sole owners (a guardian holds until they're 18), and some properties have restrictions on who can buy (agricultural land restrictions vary by state).
- Arrange financing — if using a home loan, the loan applicant and property owner should ideally be the same person. Banks allow co-borrowers, so you and the registered owner can jointly apply.
- Draft the sale deed with the correct name, relationship declaration, and source of funds mention.
- Pay stamp duty and registration in the name of the person being registered as owner.
- Maintain complete documentation — bank statements showing fund transfer, the sale deed, identity proof of both parties, and a written declaration of the arrangement if applicable.
Common Mistakes to Avoid
Don't use a benami arrangement. The Benami Transactions (Prohibition) Amendment Act, 2016 makes it illegal to buy property in someone else's name with the intent to hide the real owner. Violations can lead to confiscation of property and imprisonment up to 7 years. Buying in a family member's name for legitimate reasons (stamp duty savings, estate planning) is fine — hiding assets is not.
Don't skip the documentation. If you pay ₹35 lakh for a property in your brother's name, ensure bank transfer records clearly show the payment. Cash transactions create a paper trail nightmare and invite tax scrutiny.
Don't assume a POA equals ownership. A POA holder is an agent, not the owner. If the principal (actual owner) dies, the POA becomes invalid. Property registered through POA without proper sale deed execution can create ownership disputes.
Conclusion
Buying property in someone else's name is legally permissible in India when done for genuine reasons with proper documentation. The key is understanding the tax implications, maintaining clean records, and getting competent legal advice before proceeding.
Vedam Properties assists buyers in Rewa and across Madhya Pradesh with transparent guidance on property registration, legal documentation, and tax-efficient ownership structures. Reach out at vedamproperties.com for expert assistance.
