Benami Properties – Definition, Exceptions & Penalties | Linking Aadhaar to Property documents, a good solution?

Black money, Demonetization, Benami, Aadhaar etc., are few of the most searched words on internet these days. After the surgical strike on black money through demonetization in November 2016 ,  the govt has made it intentions very clear and has warned benami property holders that their next step would be against them.

Of-late, you must have been hearing lot of news related to seizure of benami properties and the IT dept freezing lot of bank accounts of benami holders.

Another interesting news this is currently doing the rounds is, you can become a crorepati by secretly providing information on benami properties and transactions to the IT dept.

The central govt has been planning to give out a cash reward of minimum of Rs 15 lakh and maximum of Rs 1 crore to the secret informers who provide information to the investigating agencies in connection with the benami properties. As of now, this proposal is pending for approval with the Finance ministry and can be announced later in this month (Nov 2017). (Investigating agencies are like Income Tax dept, Enforcement Directorate, Directorate of Revenue Intelligence etc.,)

So, what does benami actually means? What is considered as a benami transaction? If you invest in a property in the name of your spouse/kids, will it be treated as a benami property? What are the possible penalties under new Benami Act? Is linking of Aadhaar to immovable properties mandatory? – Let’s discuss…

What is meant by Benami?

The word Benami is originated form Persia, which means ‘an object which belongs to no one’. So, when we call a property as a benami one, it means ‘a property without a name’. Here, property can be movable (like gold/bank deposits), immovable (real-estate properties), tangible or intangible.

What is a benami transaction? – In simple terms, a benami transaction is a transaction where the property is purchased in the name of the person who has not paid for it. That means the person who is purchasing it is not paying the money from his known sources of income.

However, the person who has actually rendered the required money for the said transactions is not named in the transaction, but the property is held for the immediate or future benefit, directly or indirectly, of the person who has provided its payment.

So, the word benami is used to point out the transaction in which the owner of the property is not the actual or real beneficiary of the property.

Let’s take an example : Mr Laloo buys a house worth Rs 1 cr in the name of his domestic cook (Miss Sabari), gets the property registered in the name of Sabari. Here, the legal owner of the property is Sabari (benamidar) and the person who is actually funding the transaction is Mr Laloo. But, Laloo is the real beneficiary of the property, who gives it on rent and receives all the rental income arising from it.

The reasons for doing benami transactions can be many like – out of superstition, to evade taxes, to hide wealth, to invest black-money (or) money received through bribes etc.,

What is a Benami Transaction? | Definition as per New Benami Act

The Benami Transactions (Prohibition) Amendment Bill, 2015 was introduced in Lok Sabha on May 13, 2015 by the Minister of Finance Mr. Arun Jaitley.  The Bill seeks to amend the Benami Transactions Act, 1988.  The Act prohibits benami transactions and provides for confiscating of benami properties. This amended Act came into existence from November 1, 2016.

The new amendment redefines the meaning of Benami transactions, establishes adjudicating authorities to deal with benami transactions and also specifies the penalty for entering into benami transactions.

As per Benami Transaction Bill, a property is named as benami property, if any of the following conditions are fulfilled;

• A property which is purchased using a fictitious/fictional name means the owner does not exist.
  • For example : Mr Robert buys a Flat, pays full price of the property but gets the flat registered under the name of Mr XYZ, who does not exist at all and is a false name.
• The owner of the property is unaware of (or) denies knowledge of the ownership of the property. That means a property is bought under a person’s name without his/her consent.
  • For example : Mr Dinakaran buys a big bungalow in the name of his Aunt (Smt Sashibala). But his aunt is unaware of the fact that the house has been registered in her name. In such a scenario, the entire transaction can be considered as a benami transaction and the property can be seized as a benami property.
• A person who has provided the required money for the transaction is no longer traceable (or) is a fictitious person.
  • For example : A property gets registered in the name of Gagan but the person who has actually paid for the transaction is untraceable. In this case, Gagan is a benamidar who is in possession of a benami property.
• A Person holding (or possessing) the property or the person on whose name the property has been transferred has not paid the money or the price of the property in question is paid by another person.
  • For example : Ms Jaya buys a residential plot, pays all the costs involved, but gets the property registered under the name of his friend Sasibala.

Kindly note that leasing of properties or mortgaging of properties for a fictitious consideration can also be considered as benami transactions.

Any re-transfer of benami property by the benamidar (i.e. owner in documents) to the beneficial owner, shall be regarded as null and void i.e. not have taken place at all.

 What are not considered as Benami Properties?

In case, you buy a property using your declared income, under the name of your son, will this be considered as a benami transaction? – This scenario matches with one of the above conditions – “A Person holding (or possessing) the property or the person on whose name the property has been transferred has not paid the money or the price of the property in question is paid by another person.”

No, this transaction will not be considered as a benami transaction.

So, what are not considered as benami transactions ?

• A member of a Hindu undivided family or its Karta, can own or held any property for his benefit or for the benefit of the family members and the consideration for the same is paid out of the known source income of HUF.
• If a property is bought by a person in a fiduciary capacity (transactions involving trustee, partner, director of a company etc.,).
• Transactions wherein a person buys the properties in the name of his spouse or child (excluding married daughter), and the properties have been paid for from the person’s income.
  • You can buy a property in your unmarried daughter’s name. If you buy a property in your married daughter’s name, it will be considered as a benami transaction.
• Genuine and legal GPA properties are exempted from being considered as Benami ones.
• Properties can be jointly purchased and registered in multiple names, provided they have valid documentation and payments are done legitimately. So, you can jointly own a property with your son, spouse, a business partner etc.,
• In case, one has already declared any of his benami properties under IDS-2016, the same will no longer be considered as benami properties.

Benami Transactions – Penalty & Fine

What will happen after a property has been identified as a benami property?

The property involved in a benami transaction can be seized/confiscated as soon as the order of initiation of proceedings against the benami transaction is authorized by the competent Authority.

The authorities involved in this process are : Initiating Officer -> Approving Authority -> Administrator -> Adjudicating Authority.

In case the individual is not satisfied with the order of adjudicating authority, he/she can challenge the order with the Appellate Tribunal, and if not satisfied with the order of Appellate Tribunal, the appeal can be made with High Court.

As per the Bill, there can be a penalty of 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.

The Bill also specifies the penalty for providing false information to be rigorous imprisonment of six months up to five years, and a fine which may extend to 10% of the fair market value of the benami property.

Linking aadhaar to real estate Properties – a possible Solution?

It is a well-known fact that a major part of black money in India is held in the form of benami real-estate properties (gold and cash are other forms).

Though the present central government added more teeth to Benami Act 1988, by amending it recently (Benami Transactions (Prohibition) Amended Act, 2016), activities to catch benami properties are still going on a snail pace.

As per the authorities, it can be a easy task to identify benami properties and benamidars, but tracing and finding the real beneficiaries of benami properties is proving to be a herculean task.

Hence, the Govt is planning to announce cash reward of up to Rs 1 cr for secret informers. We need to wait and see how successful would this be??

Another possible option that Govt may come up with is – they may ask the individuals to link their Aadhaar numbers to respective property documents.

The main advantage of this strategy is that the tax authorities will get details about ‘legal owners‘ (owner as per property documents) immediately. Even if legal owners claims that it is his property, he needs to disclose the ‘source of income’ for buying that property.

In such a scenario, the legal owners can be asked to disclose the real beneficiary names. In case, the legal owners (benamidars) denies knowledge of ownership, the authorities can declare the property as a benami and can initiate the process of seizure.

But, the govt should provide proper infrastructure and sufficient time-line to link Aadhaar number to Property documents. As the registration of properties is a State subject, the state govts would have to co-operate well with the Central Govt, else the implementation can be a challenging task.

To sum it up – As long as you buy a property in the name of self, spouse, kids, parents, siblings etc., with your known sources of income (salary, profits or loans), there is absolutely no issues. It can not be declared as a benami property!

Hope you find this post useful and informative. Will linking Aadhaar to property documents, is going to be a useful measure, for the IT dept to identify benami properties and their real beneficiaries?Kindly share your views on new Benami Property Act.

(Image courtesy of Sira Anamwong at FreeDigitalPhotos.net. Face Mask picture courtesy : The Indian Express) (Post published on : 10-November-2017)