Benami Act 101: Your guide to understanding the new act

Why every Indian needs to understand the Benami Act.

Benami Act 101: Your guide to understanding the new act

William Shakespeare’s Juliet  would still have despaired over “what’s in a name” – though for a reason other than a feud between two families – if she were to buy property in India right now.

For, under India’s dusted and refurbished “Benami Act”, owning assets under a different name constitutes a crime that Prime Minister Narendra Modi has trained his guns on. To Juliet, a rose by any other name would probably have smelt as nice, but it would have also raised a stink.

PM Modi’s Threat

‘Benami’ is a Hindi word meaning “without name” or “nameless”. 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. In most such deals, who usually keeps the property papers and also retains the power of attorney to  sell the asset.

In his ‘Mann Ki Baat’ address to the nation on radio on Christmas Day, PM Modi iterated his pledge to root out black money from the system, a drive that involves cracking down on benami acquistion of property, and end conversion of undeclared cash, or black money, into gold.

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“I assure you that this is not the end,” he said, referring to amendments to an old version of the Benami Act that could not be implemented for nearly three decades because the rules were ridden with loopholes.

“This is just the beginning in our fight against corruption….In the coming days, this law will also become operational.”

The new act

The old Bill that was amended, inadequate with just nine sections, had been passed by Parliament in 1988. After the Modi government came to power, Finance Minister Arun Jaitley introduced the amended bill – with 71 sections – in the Lok Sabha on May 13, 2015.

The amendments sought to block escape routes for all benami transactions since 1988, and were passed in Parliament some months later.

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.”

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The Objective

Parliament has already cleared two Bills to zero-in on those parking undeclared money abroad. These are the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.

The PBPT Act is now targeting black money in the domestic market, and identify people entering into benami transactions to evade tax or to avoid payment to creditors.

The new Act is also expected to check benami purchase of argricultural land and black money in the real estate sector. Various departments have begun checking government lands to identify benami acquisitions.

Basically, the amended Act had three primary objectives:

a) As already stated, the primary aim was to plug lacunae in the 1988 rules by clearly defining what constituted benami transactions;

b) Second, the aim was to establish the relevant adjudicating authorities, and

c) Finally, it sought to set up an appellate tribunal to deal with benami transactions, appeals and specifying the penalty for transgressions.

The process of conducting inquiries regarding benami transactions will have four layers, these being:

a) The Initiating officer;

b) The Approving authority;

c) The Administrator, and

d) The Adjudicating authority.

So, what is Benami?

Broadly, assets of any kind — movable, immovable, tangible, intangible, any right or interest, or legal documents, and even gold or financial securities – could qualify to be benami.

Earlier, a transaction was deemed benami where the property was held by or transferred to one person but was provided for or paid by another individual.

The amended definition has now been expanded to cover transactions where:

(a) Deals are in a fictitious name;

(b) The owner is unaware of or denies knowledge of the ownership, or

(c) The person providing the consideration for the property is not traceable.

This is how it will work: a suspected benamidar will be served a notice on source of funds by an Initiating Officer. If the answer is not satisfactory, action will be initiated under PBPT Act, 2016.

The Initiating Officer may hold the property for 90 days from the date of issue of notice, if the Approving Authority permits it.

At the end of the notice period, the Initiating Officer may pass an order to continue holding the property, till matter is disposed of.

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There are Exemptions…

Genuine religious trusts are to be kept out of the purview of the new legislation.

But honest, tax-paying people also buy properties in the names of their spouse or offspring or even parents – as a cushion for them during unforeseen crises. Will such transactions be deemed benami?

Actually, no, not if the amount paid is from a declared source of income – certain cases will be exempt from the definition of a benami transaction. These include cases when a property is held by:

(a) A member of a Hindu undivided family, and is being held for his or another family member’s benefit, and has been provided for or paid off from known sources of income of that family;

(b) A person in a fiduciary capacity – transaction involving a trustee and a beneficiary, and

(c) A person in the name of his spouse or child, and the property has been paid for from the person’s known income, or

(d) Jointly with siblings or other relatives, or by someone in a fiduciary capacity.

There is nothing to worry about if the money source is accounted for.

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The Penalties

The new law seeks to replace the earlier penalties with more stringent punitive measures.

For instance, property involved in benami transaction could be confiscated as soon as the order of initiation of proceedings against the benami transaction is authorized by the competent authority. No compensation will be paid.

The person found guilty may have to face rigorous imprisonment for a period not less than one year, which may be extended to seven years.

In addition, there could also be a penalty of 25 per cent, which will be calculated on the fair market value of the property.

Further, any person found guilthy of intentionally misleading investigators when asked to provide information under the Act, can be handed down rigorous imprisonment of not less than six months. This may extend up to five years along with the fine of 10 percent of the market value of the property.

Under the new law, the Appellate Tribunal will hear appeals against orders passed by the Adjudicating Authority. Appeals against Tribunal orders, in turn, will be heard by the High Court. 

The Last Word

According to Anuj Puri, chairman and country head of real estate service provider JLL India, the success of the amended Act will lie in its quick and strict implementation.

“Else, the mystery of true ownership will remain unsolved,” he says in a signed article.


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