With demonetization drive going around in India in full swing, the Prime Minister has hinted that Benami Property could be next on the government’s radar. The amended Benami transactions act has already been notified by the government earlier this month. It has several provisions to curb Benami transactions in the country, particularly in real estate.
What is a Benami property?
The term ‘benami’ is a Hindi word which means without a name. In a Benami property transaction, a person buys a property through a proxy. The name of the person in records is different from the one who is paying for it. The owner in records then keeps the property in his care for the actual payer.
Why is it illegal?
The Benami route is often taken by hawala channels to route black money and unaccounted wealth. Since the property is in a different name, the actual source of the money through which the property was bought is cleverly concealed.
Hence, in 1988 the first act was passed to restrict such transactions. The new law, which was introduced in the Parliament in 2015 has introduced several amendments to the original act, to make it more adaptable to today’s scenario.
Any property owned by a person and paid by someone else will be illegal?
Mostly yes. But there are exemptions in place, to make provisions for genuine transactions. These exemptions mainly include
1. Property transactions where income from genuine sources of income has been used to fund the purchase for spouse or child.
2. In cases, where a joint property is being bought by siblings or close relations with declared income.
3. In cases where fiduciary and authorized transactions are taking place where a person is a trustee and working on behalf of another.
Most important features of the Benami transactions act
The bill which was introduced in the Parliament in 2015 was finally notified and came into effect from 1 November 2016.
• It not only covers real estate but also any transactions which were done in a Benami way. It could be investments in Gold, precious metals, gems or other financial assets.
• It has a provision for imprisonment up to 7 years (up from 3 years in the original act) plus fines.
• There is also provision for confiscation of such a property and the holder of such property will no compensation for the same from the government.
How will it impact Indian Real Estate?
The act will be a major deterrent for people laundering their black money into real estate. This would further make transactions in the real estate space more transparent. Also, Benami transactions are at times a major reason for unnatural hikes in property prices. Now with end users dominating the buyer list, prices could correct into realistic levels.
