On Sunday, during his Christmas day radio address, Prime Minister Narendra Modi said that his next attack in the fight against black money will be on so-called ‘benami’ properties. Modi said that the government will soon operationalise the Benami Transactions (Prohibition) Act, which was first passed in 1988 by the then Congress government led by Rajiv Gandhi, but was never enforced.
In August this year, the government amended the 1988 legislation and later framed the rules for the same. Here’s all you want to know about this Act and how it may work in the government’s fight against untaxed wealth.
What is ‘benami’ property?
‘Benami’ property is any such asset that is not held in the name of the person or people who may have actually paid to acquire it. Usually such assets are held in the names of family members, associates, friends, employees or anyone else. Typically, the person on whose name such a property is held, may not have any means of establishing a trail of income using which it was paid for.
However, such property that may be held in the name of one’s spouse or child, jointly held in the name of a sibling or a close family member or held by someone in a fiduciary capacity, will not be considered benami as long as the amount paid to acquire it is out of known sources of income and a proper money trail can be established. Religious trusts considered to be “genuine” will be outside the purview of the law, too.
But what if my property is held in the name of my parents? Can it be declared benami?
Technically speaking, yes.
What sort of assets can come under the Benami Act?
Any assets that have an intrinsic value. These include real estate, jewellery, financial securities, artefacts etc. All categories of assets are covered.
But why would anyone buy any property in someone else’s name?
Benami properties are typically bought by people who have large amounts of untaxed cash that they want to convert into another form. But holding it in one’s own name would mean that if one comes under the taxman’s scrutiny, one could be in trouble. So, typically such properties are held in the names of such people like drivers, maids, low-level employees and other accomplices who are otherwise unlikely to attract scrutiny.
In such cases, the real owner would typically keep the original papers of the property in his or her possession, and execute a power of attorney, which will allow the sale of property whenever required. Again, the new owner would keep holding the property by way of a power of attorney, while in records the owner remains the same as before. Typically, shell companies that existed only on paper were used to buy such property.
In fact, following demonetisation, there have been several reports of people trying to park their cash into the accounts of such people, as they are typically outside the income tax net.
So, is more untaxed wealth held in benami properties than in the form of cash?
By all estimates, yes, although there are no definitive proofs. And, this is why a strike on benami property could mean that much more black money could be unearthed than has been found following the government’s income disclosure schemes and the abolition of high-value currency notes.
But can someone not exit benami property in time to evade the law?
This will be tough following demonetisation, since cash fuelled this parallel economy. With the paucity of cash, not only have property prices begun to soften, the secondary market, where such cash deals typically happen, has reportedly taken a hit. Hence, if someone wants to exit a benami property, it could be tough.
How stringent are the punishments under the new Benami Act?
Under the new Act, if found guilty, a person could face rigorous imprisonment of up to seven years and a fine equal to 25% of the fair market value of the property. In addition, the property itself will be confiscated by the government. There is also a provision to appoint special public prosecutors and set up special courts in consultation with high courts.
But how exactly is the government expected to begin targeting benami properties?
We don’t know that yet, and to retain an element of surprise, Modi may want to keep his cards close to his chest, at least for now.
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