Benami properties worth Rs 800 crore seized till date: PM Modi

A transaction is termed ‘benami’ if a property is held by one person, but has been provided or paid for by another person. Benami properties are liable for confiscation by the government.

The stringent Prohibition of Benami Property Transactions Act (PBPT Act) came into effect last year. As per The Benami Transactions (Prohibition) Amendment Act, 2016, a Benami transaction involves a deal or an arrangement where a property is transferred to, or is held by, a person, and the consideration for such property has been provided for, or paid by, another person and the property is held for the immediate or future benefit, direct or indirect, of the person who has paid for it.

In effect, a property bought by an individual in the name of his child, wife, mother, father, brother or sister will be considered Benami if it is not paid for from known sources of income. Under the amended Act, it is now mandatory to buy property with parents or siblings in joint names.

Earlier, to evade taxation, people would invest their black money, in buying Benami property. The real owner of these properties was hard to trace due to fake names and identities. These were generally bought in cash in the name of servants, drivers or friends and relatives.

Under the amended Act, Benami transactions include buying assets of any kind — movable like stocks, immovable (land, home), tangible or intangible, or any interest or any right, any document or any instrument.

However, a property in the sole name of your spouse or child for which the amount is paid out of known sources of income is not Benami.
What are the consequences of indulging in this practice that has been a common occurrence in real estate deals in the past?

“If you are purchasing property, shares or investing money in fixed deposits in the sole name of your wife or child, you can go ahead and do so as long as it is bought from your known sources of income but it is advisable to buy them in joint name in case of parents or siblings but from explained source of funding as per the amended Act,” says Sunil Tyagi of Zeus Law, a law firm.

“A person purchasing a joint asset with his brother or sister will have to prove his source of income and the remaining 50 percent contributed by the sibling will also have to be demonstrated under the law,” says SK Pal, a Supreme Court lawyer.

Even a transaction or an arrangement in respect of a property where the owner is not aware of (has no idea), or, denies knowledge of such ownership or a transaction or an arrangement in respect of a property where the person providing the consideration is not traceable or is fictitious is considered Benami.

Exposure of Benami properties around 5-10 percent

The realty market was earlier dominated by land transactions at its peak in 2006-2007 and 2011-2012. Almost 30 percent of transactions were in Benami properties but that number has come down considerably since then, especially since the market has been stagnant for some years and investor interest has gone down.

Currently, exposure of benami properties is not more than 5-10 percent, says Pankaj Kapoor of Liases Foras.

Experts say that such measures may force benami property owners to sell their properties at rock bottom prices and these distress sales may help bring down property prices.

The punishment

What are the consequences of involving in Benami transactions? People caught with Benami properties could end up with up to 7 years of rigorous imprisonment and pay a significant fine. Additionally, the properties will be confiscated. A person could also face rigorous imprisonment for up to 5 years for knowingly giving false information and will have to pay a fine of up to 10 percent of the market value of the property.

Those who have invested in Benami properties will have to additionally pay a penalty of 25 percent of the fair market value of the Benami property and those who give wrong information are liable to pay 10 percent of the fair value of the property, says Tyagi.

Under the amended Act, a property cannot be transferred back to the original owner. “It is a one-way traffic now. Once an asset has been marked benami it cannot be sold further or resold to the actual owner,” says Pal.

Aadhar and Benami properties

To bring about transparency and put an end to fraudulent practices prevalent in the real estate sector such as multiple registrations of a single property, the Modi government is planning to make Aadhaar-based authentication mandatory in real estate deals at the time of registration of documents such as agreement for sale, power of attorney and others to curb the use of black money and benami transaction. The government may also enable electronic registration of properties, for which Aadhaar-based authentication will be mandatory. To implement this the central government may also amend Sections 32 and 32A of the Registration Act, 1908.

The use of Aadhaar card to register properties can serve two purposes. “First, it can serve as an identifier. It confirms the identity of the person the transaction is being entered with. Second, Aadhaar can be used for certain transactions where the title of the property does not get transferred such as the leave and license agreement,” says Ajay Bhushan Pandey, CEO, Unique Identification Authority of India (UIDAI).

Legal experts point out that linking Aadhar with property registrations will help income tax authorities examine those properties that are not linked to Aadhar and may also help weed out the difficulty of dealing with people holding multiple PAN cards.

Why is an amendment required in the Registration Act?

Presently, the Registration Act, 1908, does not have any provision making it mandatory to link Aadhaar card for registration of documents for immovable properties. Section 32A of the Act only provides for affixing of photographs and finger prints as mandatory for registration of documents relating to immoveable properties.

“In order to make provisions for linking the Aadhaar card with the registration of documents relating to immovable property an amendment may be required in Section 69 of the Act. Section 69 of the Act grants power to Inspector-General to make rules on the subjects provided under Section 69(1)(a) to (J). By an amendment in Section 69, another sub-clause in Section 69(1) may be inserted to empower Inspector General to make rules for linking the registration of documents relating to the immovable property with the Aadhaar card. Subsequent to an amendment in the Act Inspector Generals of states will be able to make rules to link Aadhaar card with the registration of documents, " adds Tyagi.