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Volume IconWhat is the Benami law in India?

The Supreme Court recently struck down a provision of the Benami Transactions (Prohibition) Act 1988 as unconstitutional. It entailed punishment for any 'Benami' transaction. Here's more about the law

ImageRaghav Aggarwal New Delhi
real estate, REITs

Enacted in 1988, the Benami Transactions (Prohibition) Act bars ‘Benami’ transactions and gives government the right to confiscate ‘Benami’ property.

What is a Benami property?

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‘Benami’ is a Hindi word which means ‘without a name'. A ‘Benami’ transaction is carried out on a fictitious name. Or the real owner buys it on someone else’s name to make profit and circumvent the tax laws.
The acts says that a ‘Benami’ transaction is a deal “where a property is transferred to or is held by, a person, and the consideration for such property has been provided, or paid by, another person".

It also includes transactions where “the property is held for the immediate or future benefit, direct or indirect, of the person who has provided the consideration.”

In simpler terms, if "A" has paid for the property, but it is in the name of some other person "B", it is labelled as a Benami property. Here, if either A or B are fictitious, the property is considered a Benami property. This law also stands in the case of the owner denying any knowledge of holding such property. Cash and sensitive information can also be termed as 'property' under the act. According to section 5 of the law, the Centre can confiscate any property that has been tagged as a Benami property.

But there are some exemptions in the law. When the property is held by a member of a Hindu undivided family (HUF) on behalf of the HUF, or on behalf of his spouse or children, it cannot be considered Benami. Also, if the property is held in a fiduciary capacity, it does not come under the ambit of the law.

The major point of contention here is the amendments to the act in 2016. Let us have a look at the amendments:
The amendment that came into effect on November 1, 2016, inserted a sub-section 2 in section 3 of part 3 of the act. It specified that whoever enters a Benami transaction shall be punishable with imprisonment for a term of up to three years or a fine or both. This has been termed unconstitutional by the Supreme Court.

What has the Supreme Court said about the law? SC bench led by CJI NV Ramana, on Tuesday, stated that the provisions under section 3 are “unduly harsh” and declared them unconstitutional. The provisions under section 5, which allows the government to confiscate the property, were also declared unconstitutional as they were “half-baked”.

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First Published: Aug 26 2022 | 7:00 AM IST

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