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In the last few years, the Benami Property Transaction Act and the various aspects surrounding this phenomenon have gained a lot of importance. The role of the government in this sector has significantly increased and they have started taking an active role in every state and the vigilant inspection of more than thousands of properties. Every other month, we hear about specialized Anti Benami units being set up by the Income Tax Department, most of us wondering what all the fuss is really about.
In case you are not up to date with the current happenings of the law, the law that governs Benami transactions in India is known as the Prohibitions of Benami Property Transactions Act, 1988. Through long round table meetings and extensive discussions, this law was amended and streamlined in 2016.
Benami Transaction has been a topic of both conflict and confusion in the real estate industry for much too long now. Even though the originality and the effectiveness of the act are still being debated upon, everyone agrees that the main goal of this act is to ensure transparency and to make sure everyone can easily trust the real estate industry and its miracle workers.
Now, the questions that arise are – what is Benami? Why are we hearing this word so often lately? Does this affect us in any way? Should we be worried? Are there any steps that we as homeowners need to take to stay out of trouble? Don’t worry, you are not all alone in this pool of confusion!
Our goal in writing this blog is to make you familiar with all the terms and concepts associated with the Benami Transaction Act. We do not want to turn this into one of those write-ups where you are constantly Googling difficult jargon and feel like you are just reading on and on without any context. To make it easy to understand and for all of us to be on the same page, we aim to begin right from scratch.
We have collated a list of mixed questions that are a combination of Benami Transfer Act-related theory and ones that are the most frequently asked by inquisitive readers. Glancing through these questions will not only help you grasp the whole idea of Benami, but you will also be successfully able to apply it in real life.
Benamidar is a person in whose name the real estate property has been purchased but has not been paid by him/her. As per Section 2(10) “Benamidar” is a person or a fictitious person (as the case may be), in whose name the Benami property is held or transferred and involves a person who lends his name.
The Beneficial Owner is an individual because of whom the Benami Property is held by the benamidar. The identity of the Beneficial Owner doesn't need to be known.
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“Benami” is a Hindi term that means “Without Name” in English. In the simplest of terms, a Benami property is one that has been purchased by an individual in someone else’s name other than himself/herself. The relevance of the Benami act is not only limited to immovable properties. The term has wide implications. “Benami Property” as an act extends to the following items –
The amendments made in 2016 have extended the Benami Property list to other items too. This includes securities, shares, and intellectual property as well.
Any transaction in which a real estate property is transferred to one person for a consideration provided or paid by another person is known as a Benami transaction. Benami Transactions have been a part of the Indian Economy for decades now. They have not only been a topic of discussion in the real estate industry but have also largely contributed to the still-rising issue of black money. A transaction can be considered a Benami transaction when –
Benami transactions are of many kinds and cannot be categorized into any one instance. There are a lot of situations where the Benami act can be imposed, and so there are no permanent formulae that the authorities use for the same. In case you want to figure out whether a property is a Benami property, here are some factors that courts consider to be of high weightage –
Now that we have a firm background of all the important terms that are associated with the act, the final stage is to discuss some examples that might make the understanding process clear. Here are some scenarios where Benami transactions are relevant.
1. If an individual in a company is in a position of power, he/she will have access to information that is price sensitive and confidential. Due to the risk of insider trading, the individual will not be a suitable candidate for trading shares for the company. As a solution, a third party is hired and is given access to funds for trading purposes.
2. Benami transaction is a broad term and so, it also extends to cash-related transactions. During the demonetization era, the norm was to deposit old notes in the bank and exchange them for new ones. A lot of people used old notes of other people to carry out this practice. This too was considered as a Benami transaction.
3. The law of each state allows an individual to only hold and have authority over a certain amount of land. When an individual exhausts this limit and wants to buy more land, they do so in the name of another person but attempt to provide the consideration of the said party itself.
Many people often fail to understand why Benami property has a negative implication on the overall workings of the economy. For the population to grasp this concept and realize the severity of the situation, it is important to understand the reason behind this.
1. In India, Benami transactions have been on the rise because of multiple unwanted reasons and dishonorable motives like money laundering, tax evasion, etc. It was also found that these transactions were used for transferring property to someone else’s name, which defeats the lawful claims of the creditors by fooling them.
>2. As a result, due to Benami transactions, there were heavy losses and multiple occurrences of fraud. With this context, the Government of India decided to forbid Benami transactions all over the country.
3. In a nutshell, the several consequences and losses arising from allowing Benami transactions outweighed their perceived advantages, and this became the main reason behind why such transactions are now forbidden by the law.
1) Where a Benami transaction has been entered into to avoid payment of statutory dues, defeat the provisions laid down by the law or avoid payment to creditors, any individual who enters or induces another person to enter into such transactions shall be punishable with:
2) Where a person who is needed to give information under the Benami Transaction Act provides wrong information shall be punishable with:
3) The Benami property can get confiscated
Any re-transfer of the Benami property by the Benamidar or the owner of the property documents to the beneficial owner will be regarded as null and void. This means that such transfer of property will be regarded as not having taken place at all.
Here, the term “Beneficial Owner” means a person, whether his identity is known or not, for whose benefit the respective Benami property is held by the benamidar.
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There can be a comparison drawn between the initial act, and the act that now stands as of 2016.
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While it is true that the amendments made to the act, in 2016, have corrected and improved the overall Benami situation, there is still a long way to go. The active participation of the government and the zeal to put things into implementation instead of just having them on paper has significantly helped. Collectively, the goal of each state is to ensure that the issues and problems are brought into the court, not just for the sake of it, but to be heard and resolved.
Needless to say, the Benami Transfer Act heavily impacts both old and new property buyers. This law was originally put into place to ensure that there is transparency in the real estate sector. With time, there is hope that the illegal and unfair practices in the real estate industry will stay in check and will slowly be entirely eliminated.
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