All you need to know about Benami Transactions

CA Pratik Anand

With the Government bringing de-monetisation to curb black money. It has also been said by the Prime Minister that the next target of the Govt. would be Benami Property. Here we are going to see all about benami property or benami transactions.

Ques: What is Benami Transaction? What is Benami Property?

Ans: Benami Property can be any property whether movable or immovable, the source and ownership of which is not known. When the owner of the property is not able to define the source of funding of the property, the property could become benami.

Ques: How does Benami transaction take place?

Ans: Benami transaction takes place between two parties. On the one hand is the beneficial owner of the property who pays the consideration for the benami transaction. On the other hand is the owner of the property in whose name the property has been purchased, such person is called the benamidar.

Ques: What are the conditions to be filled for a transaction to be classified as Benami?

Ans: As per the Benami Transaction (prohibition) Amendment Act’ 2016:

A transaction shall be regarded as a Benami Transaction if it fulfils the following two conditions:

1) Property is held by or transferred to any person for which the consideration is paid by another person and

2) The property is held for the benefit or future benefit, either directly or indirectly, for the person who has provided such consideration;

Ques: Whether Benami Property includes only Immovable property?

Ans: As per the Benami Property Transactions Act, Benami property includes both immovable property (like land or building) and movable property/assets.

Here, an important point to be noted is that in case of the ongoing process of de-monetisation, if a person deposits old currency in the account of another person with the understanding that the account holder will return the money in new currency can also be regarded as a benami transaction. Here, the Tax department can issue notices under the Benami property Act also.

The person who deposits old currency in the bank account shall be treated as beneficial owner and the person in whose bank account the old currency has been deposited shall be categorised under as a benamidar.

Ques: What are the transactions that are also included in the definition of Benami Transaction?

Ans: Following are also considered as Benami Transactions:

Any transaction or arrangement made in respect of a property carried out or made in a fictitious name.
Any transaction or arrangement made in respect of a property, where the owner of the property is not aware of such ownership.
Any transaction or arrangement made in respect of a property, where the person providing the consideration is not traceable or fictitious.

Ques: Why do people enter into benami transactions?

Ans: Many people want to know why anyone enters into benami transactions.

Some of the reasons for entering into benami transactions are:

1) People who enter into Benami transactions are those who have money earned from unknown sources i.e black money. Therefore, in order to utilise the black money, these persons enter into benami transactions where the transaction is done in the name of another person but the consideration is paid by another person out of his black money. Since these persons cannot show the transaction in their own names therefore they use names of other persons or some fictitious names for entering into such transactions.

2) Another reason for entering into benami transactions is that people want to hide the ownership of the benami property from their creditors or from the banks in case where such people have taken loans from such banks. Some people also want to hide the ownership from their relatives.

Ques: What are the transactions that are not classified as benami transactions?

Ans: As per the Benami Transactions Amendment Act’2016, following transactions are not classified as Benami Transactions:

1) If the property is held by a Karta or any member of the HUF and the property is held for the benefit of the members of the HUF and the consideration for such property has been paid through known sources of the HUF.

2) A person standing in the fiduciary capacity for the benefit of another person towards whom he stands in such capacity. Ex: A trustee, a director of the company.

3) In case of an individual, where the property is in the name of the spouse or in the name of any child of the individual and the consideration for such property has been paid out of known sources of the individual.

4) In case of an individual, in the name of his brother or sister or lineal ascendant or descendant and where the names of the individual and brother/sister or lineal ascendant or descendant appear as joint owners.

Ques: What can be the consequences of entering into Benami Transactions?

Ans: Following are the consequences of entering into Benami transactions:

As per the provisions of Prohibition of Benami Property Transactions Act, entering into benami transactions is prohibited.
This Act further provides that whosoever enters into any benami transactions shall be punishable with rigorous imprisonment for a term which shall not be less than one year and shall not exceed seven years.
In addition to this, fine of 25% of the fair market market value of the property shall be payable.
The Act further prohibits recovery of the benami property from the benamidar by the real owner and where the benamidar re-transfers the property to the beneficial owner, then the transaction for such re-transfer shall be deemed to be null & void.
Properties that are held as benami are liable to be confiscated by the Government without payment of any compensation.

Ques: What would be impact of the amendment to the Prohibitions of Benami Transactions Act on Black Money in wake of the recent de-monetisation of the currency?

Ans: Some of the impact of the Amendment to the Benami Act would be as follows:

The major impact of the applications of the Benami Act, would be on the real estate sector. This Act will ensure that the real estate transactions shall be in the name of the actual owners i.e in the name of the person paying the consideration for such property. This is likely to lower prices in the real estate sector.
It is also likely to solve a major problem in the real estate sector i.e the lack clarity of title of the property. This lack of clarity deters investors such as PE and NBFCs from investing in the real estate sector.
In case of the ongoing process of de-monetisation, if a person deposits old currency in the account of another person with the understanding that the account holder will return the money in new currency can also be regarded as a benami transaction. Here, the Tax department can issue notices under the Benami property Act also.

There might be some other impacts of the Benami Act such as:

A company raising share capital who is not able to produce its shareholders to the concerned authorities can fall under the ambit of benami transactions.
If a person takes a loan and is not able to substantiate the genuinity of the lender or is not able to produce the lender may also fall under the ambit of the Benami Act.
The new law is also likely to have a serious impact on rural India where, because of large number of cash transactions and poor state of land records, even genuine landowners may find it difficult to establish their titles.

The enactment of the amended Prohibition of Benami transactions is a major step by the Govt. to curb the flow of black money, however it is also equally important to protect all the genuine commercial transactions from the ambit of the Amended Benami Act.

The author is the founder of youronlinefilings.com an online platform for filing income tax returns, company incorporation, accounting/bookkeeping, audits, Fema related compliances etc. He can be contacted at: capratikanand@gmail.com or contact@youronlinefilings.com and Mobile: +91-9953199493

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Author Bio

Name: Pratik Anand

Qualification: CA in Practice

Company: Pratik & Associates

Location: New Delhi, Delhi, India

Member Since: 10 Jun 2017 | Total Posts: 61

Pratik Anand is the founder of youronlinefilings.in, an online startup for business registrations, annual business compliance services, Tax filings, book keeping, legal consultancy etc. He is a Chartered accountant by profession and has special flair and expertise in the area of direct Taxation. He View Full Profile