Benami Property Transaction Act - Meaning & Key Provisions

Table of Contents

1. Benami Property Act Key Provisions #1: Who is a Benamidar and who is a Beneficial Owner?
2. Benami Property Act Key Provisions #2: What is a Benami Property?
3. Benami Property Act Key Provisions #3: What is a Benami Transaction?
4. Benami Property Act Key Provisions #4: What is the process of figuring out if the property is a Benami property?
5. Benami Property Act Key Provisions #5: What are some instances of Benami transactions?
6. Benami Property Act Key Provisions #6: Why are Benami transactions considered unlawful and illegal?
7. Benami Property Act Key Provisions #7: What are the various forms of punishment under the Benami act?
8. Benami Property Act Key Provisions #8: If an individual possesses a Benami property, can it be transferred?
9. Benami Property Act Key Provisions #9: What are some exemptions from Benami transactions?
10. Benami Property Act Key Provisions #1O: What are the latest amendments in the Benami transaction act?

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.  

Who is a Benamidar and who is a Beneficial Owner?

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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What is a Benami Property?

“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 – 

• Moveable or Immovable 

• Tangible or Intangible 

• Corporeal or Incorporeal

• Rights, interests, and legal documents 

• Property that is capable of being transformed into other forms (in this case the property that gets transformed is included in the Benami property too.) 

The amendments made in 2016 have extended the Benami Property list to other items too. This includes securities, shares, and intellectual property as well. 

What is a Benami Transaction? 

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 – 

• The identity of the owner cannot be traced or is unestablished

• A property transaction and the signing of legal documents are done under a fictitious name

• In case the owner of the property in question does not know that the property is listed under his/her name 

• The buyer itself has not paid for the transaction of said property 

What is the process of figuring out if the property is a Benami property? 

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 – 

• The nature and possession of the property 

• The source from which the money that has been purchased was procured 

• The position and the relationship between both the claimant and the benamidar

• How the property is used and conducted after the sale 

• The party which receives the title deeds after the sale 

What are some instances of Benami transactions? 

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. 

Why are Benami transactions considered unlawful and illegal?

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.

What are the various forms of punishment under the Benami act? 

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:

• Imprisonment between 1 to 7 years

•  Fine up to 25% of the fair market value of the real-estate property

2)  Where a person who is needed to give information under the Benami Transaction Act provides wrong information shall be punishable with:

• Mandatory imprisonment starting with 6 months to a maximum of 5 years

• Fine up to 10% of the fair market value of the real estate property

3)  The Benami property can get confiscated

If an individual possesses a Benami property, can it be transferred?

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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What are some exemptions from Benami transactions? 

• A person who is holding a property in the name of his children or spouse and the consideration for such real estate property has been paid or provided out of the known income sources of this person.

• Property is held for the benefit of other members of the family and the consideration of such property is paid out of known sources of income of HUF or Karta.

• An individual holding property in the name of his sister or brother or lineal descendant or ascendant, and the consideration for such real estate property has been provided out of the known income sources of the individual. 

• A person who holds the real estate property in a fiduciary capacity for another person. For instance, a director for his company, a trustee for the trust, etc.

What are the latest amendments in the Benami transaction act? 

There can be a comparison drawn between the initial act, and the act that now stands as of 2016. 

• In India, the general family tradition shows that property is often held as a sign of respect on behalf of the mother or father, but the consideration is paid by the child. These types of transactions are now covered under the new Benami legislation.

•  As per the old Benami law, only the Benami property for which the payment had to be made could immediately be obtained by the Government. However, under the new legislation, if a property is termed as Benami, it vests without any consideration with the Government.

•  The old Benami law did not notify the rules and regulations for acquiring property and thus the old legislation was revoked and the new law was introduced. All the Benami transactions that took place between 1988 to 2016 would have been granted immunity. In the absence of the rules and regulations, the property that cannot be bought before 2016 can now be attached as a consequence of making alterations to the old law.

• Under the new Benami law, if an individual buys a Benami property from a Benamdar then the Government could attach such property even if the consideration fees are paid from the established or known sources.

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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.