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Is It legal to buy shares in India in somebody else's name?

Date: 28 Nov 2015   Posted By: Bharat Sharma     Group: Lawyers    Category: Indian Law   

One of my uncles had bought a few shares of Whirlpool India in the name of my father and this purchase was made about 20 some years ago. We were not aware about this and we came to know about it only recently when my uncle had asked my father to provide his PAN number, which my father has denied. Now, my uncle is telling us that it's okay and he will "manage" even without our help (which will be in the form of PAN card). I think the reason he is saying so is because he might be thinking of selling those share certificates in multiple transactions and each transaction will be lower than 50,000 as PAN is required only for transaction above 50,000. This way he will be able to reap the benefits without dealing with the PAN card issue but what about the taxes? Who will be liable for the taxes involved?

My father had not spent a single dime on buying those shares and had not even given his consent. What are all the legal actions that we can follow to make sure that tax liability from income of those shares don't come on my father's shoulder but fall on the head of my uncle.

Want to know the legal aspects of buying shares in India in another person's name? Get expert advice here.

Author: Partha Kansabanik    28 Nov 2015      Member Level: Diamond     Points : 0    Voting Score: 0

As par Income Tax Act, if a script is sold after 1 year of its purchase, there is no tax implication. So no tax liability is involved in this case.

Author: Venkiteswaran.    29 Nov 2015      Member Level: Diamond     Points : 15  (Rs 15)    Voting Score: 0

It is illegal to transact in another person's name without a consent from that person. Usually in such dealings in the stock market investment areas, the licensed agents/brokers/ portfolio managers etc take a power of attorney from the person. In the absence of a proper authorisation doing transactions on another person's name is illegal .

However in practice the legal issue comes to the fore only when the original person comes to know of it and files a case, or the tax authorities conduct raid on the acting person and gets hold of proof of such benami or fraudulent transactions. In the days when the rules were not so stringent and KYC norms etc were not in vogue , such transactions were carried on either under mutual trust or to avoid tax and other statutory obligations. Sometimes that may land the innocent victim also in problems until he proves that it is not with his knowledge.

However now it is not so easy and importance is given to KYC norms and DEMAT accounts are also needed. The named person gets periodical intimations of transactions from different points including bank and stock exchange/NSDL. etc.

In your present case if your father does not approve the transactions by uncle or he feels unsafe, then let him not give PAN card, or other ID cards etc. Let him tell uncle clearly to desist from such acts.
Your father may open a DEMAT a/c properly by doing a small transaction so that the actual credentials of your father gets recorded at relevant authorities. If the same are used by some other you father may get the intimation. Let him discuss this with a knowledgeable agent/broker/consultant in person without divulging the actual situation.and do needful.

But before that let your father have a direct discussion with your uncle and if no fraud or cheating intent was there and only the present stocks only are there, let him dispose it off at the earliest as it was uncle's own own money. But be cautious and not part with confidential matters like PAN etc.

Ensure that there is nothing more in your father's name done by uncle or others.

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