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Why every Indian needs to understand the Benami Act
shyam roy 1 Feb 2017

Why every Indian needs to understand the Benami Act

After Demonetization move numerous raids by authorities leading to seizures of thousands of crores in illegal wealth, the Income-Tax department has launched a new crackdown and this time it is on benami properties – something that many had feared would happen once the worst effects of the note ban have blown over. The Narendra Modi led NDA government has been targeting black money holders and their properties in order to eradicate corruption. 

Buying property in your parent’s name may lend you seven years in jail. According to the Benami Transactions (Prohibition) Amendment Act 2016, which came into force on November 1, last year unless you are a joint holder in the property with your mother, father, or sibling you could go to jail for indulging in benami transactions. 

‘Benami’ is a Hindi word meaning “nameless” or “without name”. This Act uses the word ‘benami’ to define a transaction in which the actual beneficiary is not the one in whose name the property is purchased – who is basically an identity cloak – the “benamidar”.

The actual beneficiary is the person financing the deal. Mostly, who usually keeps the property papers and also retains the power of attorney to sell the asset. 

 

What really is Benami Property? 

Assume if a person wants to buy a property, which might be a plot of land or an apartment, a bungalow or a commercial space. Then that person who pays the actual price of the property should ideally become the owner of the property. But the story is little twisted, in many cases. For a property, how big or how small, should be registered in the name of the buyer. In many cases, people pay the price of the property but choose to register the property in the name of a third person. This means the property is in the name of someone and some other person is paying the price for it. That kind of property which is brought under the name of third person is termed as benami property. Mostly, the benami properties are brought in the name of closed relatives like brother, sister, uncle, etc. So under the new bill, this practice will come to a halt and only property can be brought in self’s name. 

Benami Transactions (Prohibition) Act of 1988 and the Benami Property Bill of 2015 

In India, the fight against the illegal or benami properties started back in the year 1988. In that year, an act named BTA was passed to make the transaction of properties and register them to other’s name. This step was taken to eradicate the menace of black money which has crippled the Indian economy for years and is a major blot in the country’s future. Now After the Modi government came to power, Finance Minister Arun Jaitley introduced the amended bill – with 71 sections – in the Lok Sabha.

The Central Board for Direct Taxes (CBDT) has now notified that the provisions of the Benami Act would come into effect from November 1, 2016, and that it has been renamed as the Prohibition of Benami Property  Transactions Act, 2016 (PBPT Act).“The PBPT Act defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine,” the CBDT notification issued on December 2 said. “The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner. Properties held benami are liable for confiscation by the Government without payment of compensation.” 

Criteria for a property to be considered as benami 

Benami property bill of 2015 specify, there are several criteria out of which if one is satisfied, that property will be deemed as benami and strict action will be taken as per sections of law. The criteria for a property to become benami are as follows: 

  • The purchased property has been registered under the name of a fictitious person who does not exist in reality, i.e. the property is brought in a false name.  example, Mr. A is the buyer of a property and pays full price of the property. But the registered and ownership recorded with the govt. is under the name of Mr. B. And the matter of fact is Mr. B does not exist in reality and is a false identity. Then that property will be considered as a benami property. 
  • The property belongs to a person and is under his/her possession, but the actual price of the property is being paid by third person. For example. Mr. A has brought a piece of land. Mr. A has paid the price of that land as well as all other costs of registering the land. But while registration, the ownership of the property has been given to Mr. B. The owner i.e. Mr. B may be a friend or relative to Mr. A and knows the whole scenario. Then also the piece of land will be considered as benami property and Mr. B will be a benamidar which means owner of a benami property. 
  • The owner of the purchased property is unaware of the fact that the property belongs to him/her i.e. a property is brought under a person’s name without his/her consent. Suppose a person buys a apartment in the name of his/her uncle. But his uncle is unaware of the fact that the apartment is registered under his name. This means the entire transaction of property has been done without the consent of the owner. Then, that apartment will be marked as a benami property. 
  • The buyer of the property who made the fictitious payment or is untraceable but the property is registered in someone’s name. This is another case where suppose a property is registered under your name but the person who has made the property transaction is fictitious or is untraceable. Then you are just a benamidar and are in possession of a benami property. 

Exceptions & Exclusions where the property will be not considered benami under the Benami Property Bill, 2015 

The Govt. of India has set some guidelines under which a property will be termed as benami. But there are also certain exclusion and exceptions scenarios when the property will not consider as benami and will be perfectly legal to posses. Below are some conditions which will not make a property benami and will be accepted under law: 

  • Property which is brought under the name of a husband or person’s wife will not be a benami property. This means assume a person pays for the property but is making his wife, the registered owner of the property. Then the property will be absolutely legal. Same is the case for women buying properties in name of their husbands. 
  • Property brought under the ownership of daughter who is unmarried. Before marriage of your daughter, you can buy a property in her name. Buy after marriage, it will be against the Benami property bill and will be termed as benami property. 
  • Property transferred with partly transfer procedure will be exception from being considered as benami property. Suppose if you own a property and are willing to change its ownership. You have started the necessary property transfer formalities legally, under the Property Transfer Act of 1882. Then your property will be legal and will not be benami. 
  • General Power Of Attorney will be excluded from making benami property. GPA property means that property which has been given from one person to another under the rule of power of attorney. If there is a legal & legit paper work of the power of attorney procedure against a property, then it will be exempted from being considered as benami property. 
  • Joint ownership of properties with valid legal documentation are also not benami. Properties can be jointly purchased and registered in multiple names. So the joint properties with proper payment and documentation will not become benami. You can own joint property with your son, wife, sibling, business partner, etc. 
  • Some special provisions for the HUF families living in India related the benami property. A Property buyer who belongs to a HUF and is the leader or karta of the family can buy the property in the names of the family members. But there must be full legit documentation and the funds used to buy the property should be accounted at any point of time. Another important condition for the HUFs is that the karta must have the fiduciary capacity i.e. the power to handle the money matters of the HUF family. 
  • If a property has been already declared under Income Declaration Scheme, 2016, the property will not be booked as a benami property. The central govt. issued a circular for declaring such properties and money which were not declared earlier. The govt. pressed some penalty on those benami properties & black money, imposed tax on it and made it legal. So properties which are already declared under the IDS will be exempted from being ceased by the govt. 

Beneficiary is not the owner 

For better understanding of benami properties and its logic, the example of beneficiary and owner is described here. You are paying the price of a property and are making your sister the registered owner. But your sister is not using the property or not getting any benefits from it. But, by taking this step, you are drawing benefits like saving on loan interest rates, saving taxes, getting rebate on stamp duty and registration charges of property, etc. Then you are the beneficiary of the property. So your sister will be a benamidar and your property will be deemed benami and is subjected to be ceased by the govt. in accordance to law. 

How will the govt. authorities examine whether the property is benami or not? 

The government authorities will scrutinize each and every property carefully to check the ownership details and the source of funds used to buy those properties in order to root out corruption. Firstly, the authorities will examine the source of funds used to buy the property. Then they will check whether there is valid and justified intent behind buying the property in the name of the registered owner. After that, the document verification will be done. This will also include the history of taxes paid to the government against the property. The tax evaders will be punished under proper sections of law. The entire investigation will make things crystal clear about the fact, who is the real owner of the property and who is getting benefits out of it.

There are several cases of benami properties which are under scrutiny where the value of property is less than Rs. 10 lakhs but there is a PAN registered with it. Generally, PAN is required only when the price of property is more than Rs. 10 lakhs. Those properties which have undeclared taxes and TDS not deducted will be easily marked by the government authorities and will be ceased. 

Team of authorities responsible for examining the property ownership 

Government sources said that the government will form teams of authorities which will conduct the property Investigations, raids and mark the benami properties. These teams will consist four government authorities each. The teams will have members like initiating officer, approving authority, adjudicating authority and administrator. The whole investigation of the benami properties will be done step by step from one authority to another. 

Legal actions to be taken against the benami property holders 

The government has issued some guidelines related to the legal actions which will be taken against all those benami property holders or better called benamidar. If the property declared as benami by the investigating team of government authorities, it will be confiscated by the central government .The accused may face rigorous imprisonment that may be of 1 year to up to 7 years. In addition to this, penalty of 25 per cent of the property value in the current market will also be charged from the benamidar. Also there is a legal provision for those who will not cooperate with the government authorities and will give false information. They may face imprisonment from 6 months to 5 years and also might be charged with 10 per cent of the property value in the current property market. Special fast track courts will be organized to the trail of the benamidar. 

Latest update: Benami Act comes into play

"After in-depth investigations, the I-T department has issued 87 notices under section 24 of the said Act (notice and attachment of property involved in benami transaction). A total of 42 properties, largely monies worth crores in bank accounts and an immovable property, of benamidars have been attached," officials said citing an analysis report, also accessed by PTI

 What is the way out?

The beneficiary will have to declare the Benami transactions before March 31, 2017. The money from these illegal transactions must be declared and deposited under the Prime Minister Garib Kalyan Yojana 2016.

 

 

 

 

 

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