What are Benami Properties and its Exceptions and Penalties?

What are Benami Properties and its Exceptions and Penalities-minWhat are Benami Properties and its Exceptions and Penalties?

After demonetization one year back, in the hunt to remove black money from the country, another weapon the government has decided to use is seizure of Benami Properties. Mr.Narendra Modi has been indicating this in recent meetings / interviews that they would come up heavily on Benami properties in India and would punish the individuals who are buying real estate properties in some other names. What are Benami Properties mean?  What are recent guidelines from Govt. of India about Benami Properties? How to differentiate Benami properties from Non Benami properties? What are the exceptions and penalties for Benami Properties in India? Do you know that properties purchased in the name of married daughter is also Benami property?

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What are Benami Properties mean?

‘Benami’ is a Persian word which means that any object that does not belong to anybody and if we talk about property-it is any land or property purchased in the name of somebody but belongs to someone else.  It can also include property bought in the name of spouse or children or a joint property with brother, sister or any other relative for which the amount is paid out of unknown sources of income. 

Rather than accumulating black money in cash, people buy property in name of other people in order to save tax and adjust their black money. This leads to hampering of growth and development of the country due to evasion of large amount of taxes.               

What are recent Government guidelines about Benami Properties?

In the last “Mann ki Baat’ from Prime Minister, Mr. Narendra Modi, he clarified that the government will soon bring into operation a strong and new law to deal effectively with ‘Benami Properties’. This will be a big step towards eradication of corruption and black money. He further said that strict actions will be taken against the properties that are Benami and that it is the property of the country.

According to the authorities, it is easy to identify the Benami properties and benamidaars but it is really a tough task to identify the real beneficiaries of the property. The government is planning to announce the cash reward up to Rs. 1 cr. to the secret informers. The amendment to the bill for his cash reward is expected to approve in Nov/Dec-2017.

Another step is to ask the individuals to link their aadhar numbers to respective property documents. The biggest advantage about this step is that the government would come to know about the legal owners immediately.  And if legal owner claims the property to be his own, he needs to disclose the source of income to buy that property.

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Few examples about Benami Properties

Let us understand the concept with the help of few examples-

1) Mr. Rajesh buys a property worth Rs. 1cr. in the name of his driver Mr. Kamal. In the papers, the property is held by Mr. Kamal but the transaction is funded by Mr. Rajesh. He is the real beneficiary of the property.

2) Mr. Vikas buys a property, pays its entire amount but gets it registered in the name of Mr. XYZ who does not have any existence.

3) Mr. Manish buys a big bungalow in the name of his aunt Mrs. Rashmi, but she herself is unaware of the fact that a bungalow has been registered in her name. 

4) A property gets registered in the name of Mr. Piyush but the person who has paid the full amount of the property is untraceable. This property is known as Benami property and Mr. Piyush is called as benaamidar.  

6) Mr. Amit buy a residential plot, pays all the expenses involved but gets it registered under the name of his friend, Arun.

Which are not Benami Properties?

The properties that are purchased in the name of relatives with the known sources of income are not called as Benami properties.

1) A member of Hindu Undivided Family (HUF) who holds property for his benefits or for the benefits of any family member and the consideration for that property is paid out the known income sources of HUF.

2) If a property is bought by a person in a fiduciary capacity.

3) Any property that has been bought in the name of spouse or child (but not married daughter) and the property have been paid off from the income sources of that person. If any property bought in the name of married daughter’s name, it will be considered as Benami. However, property brought in individual name and then gifted to married daughter is not Benami property (gift registration).

4) Genuine and legal GPA properties are not considered as Benami ones.

5) In case, if one has declared any Benami property under IDS-2016, it is no longer considered as Benami property.

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What are Penalties and Consequences if Benami Properties are identified?

The first law that was passed against Benami property was in the year 1988 as ‘The Prohibition of Benami Property Transactions Act, 1988’. In July 2016, Modi Government decided to amend this original act in order to fight against black money. Thereafter, Benami Transaction Amendment Act, 2016 came into force on November 1, 2016. This acts defines Benami in its precise sense, prohibits it and further mentions that violation of this act is punishable with imprisonment and fine. This act prohibits recovery of the property by the real owner from benamidaar. Benami properties are liable to be confiscated by the government without paying any compensation. Besides, it provides for rigorous imprisonment of up to seven years and a fine which may extend up to 25% of the fair market value of the Benami property. The act also empowers the government to confiscate deposits of people using other accounts to convert unaccounted wealth to white money.

Conclusion: On 14th November, CBDT Chief informed that they have scanned lakhs of profiles where the property is registered for more than Rs 30 Lakhs as per Anti-Benami Act. If one is buying property in his own name or in the name of his wife or siblings with the known sources of income, he need not worry about this act. However, such move would create some panic in real estate segment which is already struggling for growth after demonetization.

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What are Benami Properties and its Exceptions and Penalities

Suresh KP


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