In a benami transaction, property or land is bought in someone else’s name or under a fictitious identity (also known as Benamidar), with the primary objective of hiding black money and staying under the radar of tax authorities. In 1988, the Benami Transactions (Prohibition) Act was enacted which made it an offence to undertake Benami transactions.
Despite the legislative effort, there were some corners of Benami transactions left unattended.
To fill the void in present laws, an amendment was proposed and passed by the Parliament in 2016 namely, The Benami Transactions (Prohibition) Amendment Act, 2016. The purpose of this amendment is to bring effectiveness and efficiency in the implementation of laws prohibiting Benami transactions.
The major modifications and additions brought in by the amendment are being hereby categorically mentioned, to understand and estimate its influence on realty sector.
1. Benami transaction re-defined
In the former law, benami transaction was simply defined as any transaction in which property is transferred to one person for a consideration paid or provided by another person.
Whereas in the new legislation, benami transaction is defined as a transaction in which:
a) the property is held by one person and paid for by another; or
b) it is held in a fictitious name; or
c) the owner of such property is unaware of or denies having knowledge of such ownership; or
d) the person financing such transaction is not traceable.
This new definition has the following exceptions-
i. karta for his or his family member’s benefit; or
ii. a person standing in fiduciary capacity for the benefit of another, including a trustee, an executor, a partner, a company director or a depository participant or agent; or
iii. a person for the benefit of his spouse or child; or
iv. a brother or sister or lineal ascendant or descendent.
Additionally, the consideration paid for such transactions should have come from known and traceable resources to claim these exceptions. Otherwise, it will be considered as a Benami transaction.
2. Property re-defined
Previously, property meant property of any kind, whether movable or immovable, tangible or intangible, including any right or interest in such property.
After the amendment, property means not only movable or immovable, tangible or intangible property but also corporeal or incorporeal including any right or interest or legal documents or instruments evidencing title to or interest in such property and where the property is capable of conversion into some other form, then the property in the converted form and shall also include the proceeds from the property.
Thus, a wide range of transaction will be covered under the ambit of Benami laws.
3. Higher punishment
The new law seeks to change the earlier penalty of one to three years, to rigorous imprisonment of one year up to seven years, and a fine which may extend to 25% of the fair market value of the benami property.
4. Establishment of adjudicating authorities
The amended law provides for the establishment of four authorities- (i) Initiating Officer, (ii) Approving Authority, (iii) Administrator and (iv) Adjudicating Authority, to conduct inquiries or investigations regarding Benami transactions:
5. Power to make rules by the government
Through this amendment, government has been granted the right to formulate rules for the proper execution of provisions under the Act.
6. No right can be enforced by the real owner against Benamidar.
The real owner or any person on his behalf is prevented from filing any suit, claim or action against the namesake owner. In other words, the real owner who has funded the capital will not have any right to retrieve his property if the transaction is benami.
7. Benami property cannot be transferred
No transfer can take place in respect of the Benami property once it comes under the investigation radar of the authorities established under this Act. Any transfer made during the investigation process of the concerned property shall be held invalid in eyes of law.
8. Re-transfer of Benami Property
A benamidar cannot re-transfer the benami property held by him to the beneficial owner or any other person acting on his behalf. If any benami property is re-transferred the transaction of such a benami property shall be deemed to be null and void.
However, this does not apply to a re-transfer of benami property initiated pursuant to a declaration made under the Income Declaration Scheme, 2016. As per Section 190 of the Finance Act, 2016 the Benami Act shall not apply in respect of the declaration of the undisclosed asset if the benamidar transfers such benami property to the declarant who is the real beneficial owner within the period notified by the Central Government. i.e. on or before 30th September, 2017.
Predicted positive impacts of the new Benami Act, on the real estate market :
The issue of transparency in property deals is the biggest concern for all. The coverage of numerous transactions and establishment of adjudicatory bodies, in addition to widening of the investigative powers for handling such illegal activities, will induce an environment for secure and transparent deals in realty sector.
With the resolution of transparency issues and clear adjudicatory procedures for Benami properties, more investors shall be willing to invest their funds in real estate.
Restriction on Black money
This amendment ensures that the fund flow for a property is from legitimate sources only and not garnered through illegal means, commonly referred to as the black money. No exemptions are provided under this law if the source of funds cannot be accounted or traced back to legitimate sources.The exclusion of black money from realty market will help in bringing the realty industry at par with other formal industries.
Prevention of tax evasion
In order to save taxes, it is a popular practice to divert large proportion of one’s wealth for purchase of properties on other person’s name. However, the new law aims to filter these kind of transactions from genuine property deals and punish the wrongdoers with imprisonment and heavy penalty.
Increased Buyer Confidence
The Buyer segment will be more confident and eager to enter into property deals as the title risks will reduce to almost negligible due to the transparency brought in by the new legal regime.
The new law provides for higher amount of fine and increased years of imprisonment in case of deviance from the provisions contained in the new Act.
If the available evidence confirms it, the Adjudicating Authority is authorized to even order confiscation of the property by the government.
Apart from the beneficial owner and the benamidar, other persons involved in the transaction are also going to be punished. A fine of up to 25% of the market value of the property can be imposed on all the parties.
In case false information or documents is provided to the authorities by any person, he maybe imprisoned for up to five years and face a fine of up to 10 per cent of the market value of the property involved.
The realty sector is entering a new age which stands for transparency and bonafide agreements. The government is taking steps like introduction of new laws to formalize the realty sector as it has the potential of contributing significantly to the economy of the nation. Though the proportion of impact can be judged only after passage of sometime but it cannot be denied that the participants of real estate market have accepted the new enactment with open arms and a positive outlook.