Earlier the benami transactions are defined as a “transaction where a property is held by or transferred to a person, but has been provided for or paid by another person”. This Act has amended this definition by to add other transactions which qualify as benami, such as property transactions or arrangement where:
- where a property is transferred to, or is held by, a person, and the consideration for
such property has been provided, or paid by, another person
- the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration
- the transaction is made in a fictitious name,
- the owner is not aware of denies knowledge of the ownership of the property, or
- the person providing the consideration for the property is not traceable.
The Bill also specifies certain cases which will be exempt from the definition of a benami transaction. These include cases when a property is held by:
(i) a Karta, or a member of a Hindu undivided family, as the case may be, and the property is held for his benefit or benefit of other members in the family and the consideration for such property has been provided or paid out of the known sources of the Hindu undivided family;
(ii) a person standing in a fiduciary capacity for the benefit of another person towards whom he stands in such capacity and includes a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose;
(iii) any person being an individual in the name of his spouse or in the name of any child of such individual and the consideration for such property has been provided or paid out of the known sources of the individual;
(iv) any person in the name of his brother or sister or lineal ascendant or descendant, where the names of brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document, and the consideration for such property has been provided or paid out of the known sources of the individual
This new law has also increased the penal provisions for ,
- whoever is found guilty of the offence of benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to 25 per cent of the fair market value of the property.
- whoever is guilty in providing false information as required to furnish shall be punishable with 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
Impact on Real Estate
This act would be applicable on any kind of assets movable, immovable, tangible, intangible, corporeal or incorporeal. It also includes any right or interest or legal documents or instruments evidencing title to or interest in the property; where the property is capable of conversion into some other form, then the property in the converted form; and the proceeds from the property. The act is expected to adversely impact transaction volumes and lower property prices. The act will ensure that all real estate transactions shall be in the name of actual owner. i.e. actual person paying the consideration from her/his known sources. One of the major problem in real estate transactions is clarity of title which limits investor as well as financial Institution participation in the sector. Transparency issue is one of the negative factor which limits the private equity and NBFCs
The amendment in the act is a means to reduce generation and utilization of unaccounted (black) money. This was a pivotal election promise made by the current government. Through this amendment the government seeks to clearly define ‘Benami‘ transactions, establish adjudicating authorities and an Appellate Tribunal to deal with Benami transactions, and specifies the penalty for entering into Benami transactions. Moreover, this will also increase the tax revenue for the Government by curbing unaccounted money into the system.
In the short term it will lead to a reduction in transaction volumes. However, in the long term it will make India a more attractive investment destination, aligning transactions with ethical standards and will increase international institutional investors and financial institutions participation in this sector.