In the past few years, we have seen that our government has taken some major steps to put an end to the black money dealings. Various measures, such as the Income Disclosure Scheme, the Black Money Act and Demonetization, have been taken to put a halt to the black money market. In this context, the terms, “Benami Property”, “Benami Act”, “Benami Transactions”, etc. have always gained a lot of attention. In the below sections, we have simplified everything you need to know about the Benami Act for your better understanding.
The Original “Benami Act”
The original Law related to Benami transactions was first defined in The Benami Transactions (Prohibition) Act, 1988. The Act had 8 sections which were later amended by the Benami Transactions (Prohibition) Amendment Act, 2016.
What is a Benami Property?
As the name suggests, Benami Property refers to property “without a name”. In this type of transaction, the person paying for the property does not buy it under his/her name. The motivation behind such transaction is usually to evade paying taxes. A typical example of a Benami transaction is when a person buys a house in the name of his daughter-in-law. As a result, the property is sold to a woman, but the consideration is given by her father-in-law. If we break this down, the house is actually a subject of the Benami deal and can be referred to as a ‘Benami Property.‘
It should be remembered that, contrary to common belief, the enforcement of Benami law is not limited to immovable objects. For Benami, the term ‘property is very broad and includes assets of ‘any kind’; whether tangible or intangible, movable or immovable, corporeal or incorporeal; and not only that, but it also includes any rights or interests or legal documents or instruments evidencing title to, or interest in the property, and where the property is capable of conversion into any other asset. In particular, the proceeds from the property are included in the concept of ‘property.
Though historically only homes, vehicles, and jewels were considered property for Benami Law, the current law includes stocks, bonds, and intellectual property as ‘Benami Property’ as a subject to the Benami Act. The 2016 amendment’s extension of the term represents the legislative aim to deepen the crackdown on such activities.
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What is meant by a Benami Transaction?
To understand the concept of Benami Transaction, let us take another example:
|Mr. X buys residential property in the name of Mr. Y.|
Mr. Y agrees to hold the property for Mr. X.In this case, Mr. B is the beneficial owner of the property.So, when a property is transferred or held by one person, the benamidar (Mr Y) for the benefit of another (Mr X) who actually pays for the same is considered as a Benami Transaction.
Some other transactions also tend to fall under the definition of Benami Transactions, such as:
- When a property is bought under a fictitious name. i.e. the Benamidar is an unreal person
- When the owner of the property denies being the owner of the property
- When the identity of the beneficial owner is unknown.
What is the Punishment under the Benami Act?
If any individual enters into a Benami transaction to avoid the payment of taxes, other legislative dues or escape payments to the lenders, the beneficial owner, benamidar, and any other person who helps or induces any person to enter into the Benami transaction are guilty of the Benami transaction offence. Whoever is found guilty of the crime of Benami transaction referred to in sub-section shall be punished with stringent incarceration for a period not less than 1 year, but not less than 7 years, and shall also be liable to a fine of up to 25% of the fair market value of the land. As a punishment under the Benami Act, the Benami property may also be confiscated.
What transactions are exempted from Benami Transactions?
Some transactions exempted from being Benami Transactions are:
- If the property bought is held by a member of the HUF (Hindu Undivided Family) for the benefit of the HUF and the property is paid from the known sources of HUF
- An individual who owns the property in a commercial sense for another – for example, a director for his business, a trustee for the trust, a depository/depository participant for a broker (holder of shares in Demat form), and so on;
- An individual who holds property in the name of his partner or infant and receives the consideration from known sources
- An individual who holds property jointly with his/her siblings or lineal ascendant/descendant and receives the consideration from known sources