Beware, benami property holders

Maulik Madhu | Updated on January 16, 2018 Published on December 04, 2016


The next leg in the battle against black money could be a crackdown on benami transactions, with the enforcement of the new Benami Act

Old habits die hard, they say. But if you have got into the habit of conveniently stashing away your ill-gotten wealth over the years, it’s time to shed this habit. With the government turning up the heat on unaccounted income, hiding your black money will no longer be easy. Declaring your income honestly and paying taxes perhaps will be.

From passing the Black Money Act last year to nabbing those with undisclosed foreign income, to income declaration schemes, to the recent caught-all-by-surprise demonetisation move, the government has done much to nudge those hoarding black money to come clean. One such big move has been the passage of the Prohibition of Benami Property Transactions Act (new Benami Act) by Parliament in August and its coming into force from November 1.

The stronger legislation is, however, not the only thing to watch out for. With the IT department collecting data on numerous high-value transactions through several different ways, it’s unlikely that any big transaction will escape its watchful eye. Information on certain transactions is being regularly sent by banks, mutual funds and other such institutions in the form of Annual Information Reports.

Data is also being gathered on transactions that attract tax collected at source (TCS) and tax deducted at source (TDS). Apart from that, transactions that require the PAN to be quoted, too, do not escape the taxman’s notice.

With so much data flowing in, you don’t know when the tax department will come knocking on your door. And the new Benami Act has armed it with just the right power to take swift action.

So those who have been using their unaccounted income to buy assets in the names of other people (servants or drivers, for instance) to evade detection by the tax authorities have to brace themselves for prosecution under the new Benami Act. In fact, people in whose names the benami assets have been purchased too will be brought to book.

But do note, not every asset that you buy in someone else’s name will be considered benami. Asset purchases for certain family members are excluded under the Act.

What the Act says

But first, what exactly is a benami property? Simply put, it is a property whose legal owner is not its actual owner. That is, while the asset is legally held in the name of a particular person (benamidar), it actually belongs to another person (beneficial owner) who has paid for it and continues to hold interest in it.

Under the Act, the term ‘property’ has been defined comprehensively to include not only immovable assets such as land, flat or house but also movable assets such as gold, stocks, mutual fund holdings and even bank deposits. Nothing has, in fact, been spared. If the property is sold off, then the proceeds from it too are considered benami.

Under the new Benami Act, property purchased in the name of a fictitious person or where the payment for the property has been made by someone who does not exist or cannot be traced too is considered benami. The Act covers all domestic benami property transactions conducted since 1988.

It’s a family thing

However, if you have bought some property in the name of your spouse or child from your known sources of income, it will not be treated as benami.

You can also buy property for your brother, sister, a lineal ascendant or a lineal descendant but that must be held jointly with you for it to be excluded under the Act.

Lineal ascendants include your father, mother, grandparents, great-grandparents and so on and lineal descendants include your children, grandchildren, great-grandchildren and so on. Apart from that, property held by the karta or a member of the Hindu Undivided Family (HUF), the payment for which has been made by known sources of income of the HUF, too will not be treated as benami.

Giving it teeth

While benami property transactions have been around for as long as one can remember, it is only recently that the government seems to have got cracking on them big time.

This is because until the new Benami Act came in, the existing legal framework for dealing with such transactions was at best weak if not virtually non-existent.

Though the earlier Act provided for imprisonment of up to three years and/or fine for parties entering into a benami property transaction, the lack of an implementation machinery made the act unenforceable. Rules for making the Act operational, such as appointment of investigation authorities and the procedure for confiscation of property, were never framed. The Act could, therefore, not be implemented.

Now, the new Benami Act provides a comprehensive implementation mechanism and if you indulge in such transactions you are sure to be punished.

The Act gives the Initiating Officer (Assistant or Deputy Commissioner of Income Tax) the power to enquire into any person, place, documents or property in the course of investigation into any matter related to a benami property transaction.

It also mandates officers from different government organisations such as the Customs and Central Excise departments, the narcotics department, RBI and SEBI to assist the authorities tasked with investigation. If the Initiating Officer is convinced that you hold a benami property, you will be issued a notice, and, if required, the property will also be provisionally attached.

Strict action

If the available evidence confirms it, the Adjudicating Authority (appointed by the Centre) will order confiscation of property by the government.

Apart from awarding imprisonment of up to seven years to the beneficial owner and the benamidar, others involved in the deal, too, will not be spared. A fine of up to a fourth of the market value of the property can be imposed on all parties.

Those providing false information or documents to the authorities may be imprisoned for up to five years and face a fine of up to 10 per cent of the market value of the property involved. Appeals can however, be made against the decision. The Act provides for an Appellate Authority, appointed by the Central government, for this purpose.

Further appeals lie with the relevant High Court but have to be made within 60 days from the decision of the Appellate Tribunal.

Another point worth noting is that there’s no way you can have a benami property back in your name. The new Act clearly forbids re-transfer of a property from the benamidar to the beneficial owner. And if a re-transfer does happen, it will be considered invalid.

With the new Benami Act leaving no route for escape, it’s time you became an honest taxpayer.

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Published on December 04, 2016
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