Benami property holders should watch out

The amendment Bill has made penalties for holding benami properties more stringent but provides for an appeal mechanism

With the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015, the government had made the laws against concealment and tax evasion on foreign income more stringent. Now, with the Benami Transactions Prohibition (Amendment) Bill, 2015, passed by the Lok Sabha recently, it is targeting domestic black money.

While there is a Benami Transactions (Prohibition) Act of 1988, the amendment Bill gives the government more powers. Says Rakesh Nangia, managing partner of Nangia & Co: “The original Act had a few loopholes, including lack of provisions for vesting of the confiscated property with the Centre and absence of an appellate mechanism.” The current Bill plugs these by providing for confiscation of benami properties.

THE IMPACT

• The Bill gives the Centre the power to confiscate benami property
• Penalties made more stringent: rigorous imprisonment of one year going up to 7- year, and a fine of up to 25% of market value
• General power of attorney holders exempted, provided stamp duty has been paid and contract registered
• Escape provisions of the Bill by disclosing property under IDS

Also, a number of new categories have been included: Where the transaction has been made in a fictitious name; the owner is not aware of or denies knowledge of ownership of property; or the person providing the consideration (the money) is not traceable.

The Bill will establish four authorities to investigate benami transactions: Initiating officer, approving authority, administrator and adjudicating authority. It also seeks to establish appellate tribunals to hear appeals against orders passed by the adjudicating authority. People will have the right to appeal the orders of the appellate tribunals before a high court.

Some categories have been specifically excluded from the definition of benami. The Bill exempts a contract for transfer of property that has been partly executed under the Transfer of Property Act, 1882. “The government has accepted the recommendation of the Standing Committee and exempted general power of attorney transactions, provided the stamp duty on such a transaction has been paid and the contract registered. This was a big concern among buyers in the National Capital Region,” says Sanjay Sharma, managing director, Qubrex Realty.

Those who buy property through known sources in the name of their spouse or children, brother and sisters, etc with their name appearing as joint owners will be exempted. A karta of a Hindu Undivided Family (HUF), and a person standing in a fiduciary capacity for the benefit of another person, such as a trustee, will also be excluded. “Also, if the benami property is disclosed as part of the Income Disclosure Scheme (IDS) 2016, the provisions of the amended Bill will not be applicable,” says Nangia.

The penalties for holding benami property have been made more stringent. Under the 1988 Act, a person could be imprisoned for up to three years or fined or both. The Bill has increased the penalty to rigorous imprisonment of one year and going up to seven years, and a fine of up to 25 per cent of the fair market value of the property. A penalty can also be imposed for providing false information. According to industry experts, the stiff penalties should act as an effective deterrent. The fine will be on the market value of the property. As the asset’s price goes up, the risk that benami property holders are exposed to will also rise.

As for the impact on the real estate sector, Ashutosh Limaye, national director (research), JLL India, says: “The Bill will curb benami holdings in land, where cash transactions tend to be high. In case of built-up property, the Bill will be effective in tandem with the Real Estate (Regulation and Devel-opment) Act, which requires builders to maintain and share audited accounts with the regulator.”