How to show a flat or plot bought in a spouse's or child's name in your tax return

Buying land, a flat or a house in the name of a spouse, child or parent with your own money is not illegal. But if there are inconsistencies over the source of the money, proof of a gift or loan, and ownership of the asset, the income tax authorities may ask questions.

Buying assets in family members' names is nothing new in Bangladesh. Many people buy land and flats in the name of a spouse, child or parent for future security, inheritance or family asset management. Some buy property with their own money but register the deed in another family member's name.

Several questions then become important: where did the purchase money come from, is the person named the real owner of the asset, and was the money given as a gift, a loan or under another financial arrangement? Without satisfactory explanations and proof, complications can arise in the asset statement in the tax return and in tax assessment.

Section 66 of the Income Tax Act 2023 generally treats donations, grants and gifts as 'income from other sources'. However, paragraph 35 of the Sixth Schedule allows assets received as gifts from specified relatives to be excluded from total income.

Those relatives are spouses, parents, children and full siblings. The condition is that the gift must be shown in the income tax returns of both the giver and the receiver.

Take an example: a father gifts his daughter a flat worth one crore taka, with the money coming from the father's lawful, declared income. The father shows the gift in his return, and the daughter records the gifted asset and the increase in her assets in hers. If the legal conditions are met, the gift may be income-tax-free in the daughter's hands.

But being free of income tax and being free of gift tax are not the same thing; the two taxes are governed separately. Under the Gift Tax Act 1990, voluntarily giving cash, land, a house or a flat to another person without consideration can be treated as a gift.

Section 4 of the Gift Tax Act exempts gifts to specified relatives: children, parents, spouses and full siblings. So a father gifting land or a flat to his daughter owes no gift tax. Gifts between grandparents and grandchildren, uncles and nephews or nieces, however, are not automatically gift-tax-free just because of the family relationship.

When land or a flat is gifted, its value must be determined under the Gift Tax Act's provisions, taking the likely market value on the date of the gift; stating a lower value in the deed does not mean that value will be accepted for tax assessment. For a taxable gift, a gift tax return must be filed before 15 September of the following tax year.

Many people take loans from close family members to buy a flat or plot, and such loans are not illegal. Under subsection 13 of section 67 of the Income Tax Act 2023, a loan, advance or deposit of more than five lakh taka taken outside banking channels can, under specified conditions, be treated as 'income from other sources'. The law allows exceptions for transactions between certain relationships, and showing the transaction in both the lender's and the borrower's returns is important.

If you take a loan from a family member, keep records of the loan amount, its terms, the repayment period and proof of the money transfer. If the loan is later waived, it may be treated as a gift, in which case the gift tax provisions also come into consideration.

Under income tax law, unexplained bank deposits or an increase in assets inconsistent with declared income and expenditure can be treated as 'income from other sources'. To avoid future complications, keep proof of the source of funds, the gift deed, the loan agreement, bank statements or receipts for the transfer, and consistency between the relevant information in both parties' returns.