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Everything about Benami Property Transactions Act, 1988
'Benami' is a Hindi term that translates to 'no name'. A Benami property or Benami transaction is one where a person doesn't use his own name but the name of another person or a fictitious person. This is illegal and is a punishable offence under a court of law. Thus, in the past few years, our government is taking significant steps to end such dealings.
Navigate through this write-up to have an idea about the Benami Property Transactions Act. Also, find the punishment one can attract under the same.
What is Benami Property Transactions Act, 1988?
The Benami Transactions Act prohibits Benami transactions. If carried, it allows the government to recover Benami property or a property with 'no name'. As per the Act, a Benami transaction is defined as a transaction where a person holds or transfers a certain property and another person pays for the consideration of such an asset, on the other party’s behalf.
What are the Amendments to the Benami Property Transactions Act in 2016?
The amendment to this Act came into effect on 1st November 2016. This amendment added a sub-section (2) in section 3 of part 3 of this Act. This mentions individuals entering into Benami transactions will be punished with imprisonment for up to 7 years or a fine or both. Additionally, the new punishment will also be applicable for transactions that took place before the year 2016.
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What Transactions Does the Benami Property Transactions Act Cover?
Benami Transactions include those dealings where an individual holds on to a certain property for future benefits or immediate cause, directly or indirectly, of that person who has given the consideration.
Here is when a property becomes Benami:
- For instance, there is a property which has been bought and registered under the name of Mr.X. However, the payment for the property is paid by Mr.Y. In this scenario, Mr. Y is considered to be the property’s beneficial owner.
- Additionally, if any of the persons are fictitious, the government labels this property as a Benami property.
- The law also holds if the owner denies having any knowledge or doesn’t actually have any knowledge about having any such property.
- The identity of the person who provided the consideration remains unknown if the individual who is giving the consideration is fictitious or untraceable.
Therefore, according to the law, the Central government can seize any property it labels as Benami property. However, it is essential to note that cash and any other sensitive information also becomes 'property' under the Benami act.
What are the Exceptions to the Benami Property Law?
So, now that you have an idea about the Benami property act, here are some exceptions to keep in mind:
- Suppose any member of the Hindu Undivided Family or HUF has any property under their own name or has a property under the name of any other members of their family. If they make payments through known income sources of the HUF, it is not a Benami transaction.
- Any transactions made by: a depository or a director of any company, a trustee, a partner, an executor, or an agent of a depository under the Depositories Act is not a Benami transaction.
- In other cases, a sister or a brother or any lineal descendant or an ascendant, where the names of the ascendant/descendent or the brother/sister display as joint owners in any valid documents and the funds paid are from known income sources, the property is not a Benami one.
- Any individual holding a property in the name of his child or spouse and making payments from known sources of the particular individual, the property is not a Benami one.
- If there are any other exceptions notified by the Central government, the same will be followed.
What are Some Instances of Benami Transactions?
There are several instances of Benami Transactions, and some of them include the following:
- Each and every state or region holds a certain limitation on the size of agricultural land that a person or any of his/her family members hold. As soon as it reaches the limit, that individual tries to purchase the land. It will be in the name of any other family member or a person, but the former person will pay consideration of the property.
- During the demonetisation scenario, there were several instances where people deposited old currencies into their bank accounts, exchanging them for new ones. However, a lot of this money belonged to other individuals. It is important to note that cash is an important aspect that is included in the Benami Act. Hence these transactions can also be referred to as Benami transactions.
- A person, a core member or any employee of a company who has access to price-sensitive information about that company can never trade in shares of that particular company. This is because there are higher chances of insider trading then. So, to find a solution to this, they involve and include a third party who is unrelated and share funds with them so that they can trade on behalf of the company.
What is the Punishment Under the Benami Property Transactions Act 1988?
The various types of punishment under the Benami Act are as follows:
- If any property is labelled as a Benami property, it will be confiscated or seized.
- A person indulging in such a case will serve imprisonment between 1 to 7 years.
- Apart from imprisonment, the person also needs to pay a fine of up to 25% of the fair market value of the same property.
If a person who needs to provide information under this Act gives false information, he/she will face either or both the punishments, such as:
- Fine up to 10% of the fair market value of the same property.
- Shall be imprisoned between 6 months to 5 years.
Therefore, avoid any payment of statutory dues or payment of funds to creditors where a Benami transaction is entered to defeat the provisions of any law. Any person who enters or instigates another person to enter into such things will face the above circumstances under a court of law.
What are the Tax Penalties Applicable to Benami Properties?
A person entering into an illegal investment under another person’s name comes with a lot of implications under the Prohibition of Benami Property Transactions Act. Besides, there are many implications under the Income Tax laws, both for the Benamidar and the beneficial owner.
The beneficial owner is the person who gives funds to purchase a particular property in another person’s name. Here are the tax implications as follows:
Income Tax Implications for the Buyer (Beneficial Owner)
As per Section 69 of the Income Tax Act, if a person makes any investment that is not recorded in the book of accounts that he/she maintains, then the value of such investments made will be considered as the person's income. This will also fall under taxation in the year he/she made such investments.
Taxes on Benami Properties
The minimum tax rate that one has to pay for a particular income bracket is 30%. However, All Benami investments fall under taxation at a rate of approximately 60%. Apart from that, the person will also have to pay a surcharge of nearly 25% and an additional penalty of 6% on the total tax amount. Therefore, the total tax liability after considering all these taxes and surcharges will nearly come to 83.25% of the total value of the investments.
Income Tax Indications for the Benamidar
Since Benamidar is legally the property owner, they must pay a tax on the income generated from such a property. The legal owner will have to provide income on such properties even if there is no income generated from such properties.
Furthermore, a Benamidar will be liable for concealing such necessary facts before the Income-tax authorities and for providing wrong statements. This might lead to heavy fines and penalties under the Income Tax Act.
So, now you have all the details about the Benami Property Transactions Act. However, if you have such a property and are willing to transfer it, refrain from taking such a step. In that case, consult with a well-educated and experienced lawyer who will be able to provide an expert solution to you in this regard.