You might have come across the word ‘Benami’ multiple times (especially when living in India), but what does it really mean? Benami in its literal sense is ‘be-naam‘ or ‘without any name’ associated with the thing in question. But, is it true for a property as well?
To have a better understanding, we will focus on what Benami property means and the Benami property act in India in this article below. So, let’s dive in!
What Is A Benami Property?
A Benami property means or is referred to as a transaction or an arrangement, where a property is transferred to or held by a person with consideration for such property having been provided or paid by another person.
This Benami property received on behalf of an entity that is not the actual owner is also known as the ‘Benamidar.’ They, as per the law, are required to pay the tax on their income as they become the legal owner of the land.
What Are The Laws Of The Benamidar Under Whom The Property Is Held, In The Name Of A Benami Transaction?
Listed below are a few responsibilities held under the Benamidar of the Benami property:
- If the legal owner or the Benamidar owns more than a single property, then the notional rent that is applied would be according to the income tax laws
- If income in these properties cannot be owned, then the legal owner must provide with their income as a Benami transaction on such properties
- The Benamidar are liable and can be held accountable for the penalty under the Revenue Tax law if they happen to conceal or show fake evidence before income tax authorities.
What Are The Consequences Of A Benami Transaction?
The legal owner of a property that is held for punishment by the law by the adjudicating authority will either face:
- Imprisonment from a year up to 7 years and/or with be liable to pay a fine of up to 25% as per the fair market value of Benami property
- Confiscation of the property by the central government.
- There could be a re-transfer or a prohibition of the property from the Benamidar to the beneficial owner.
What Percentage Of Tax Is Incurred For A Benami Property?
In a Benami property, the investments are taxed at 60% with a surcharge of 25% and education cessation of 3%. After which, the tax liability will amount to 83.25% of the value of the investment of the property.
The Benami Property Act Of India
The original transaction of the Benami Transactions Prohibition Act was established in 1988 with only eight sections of the entire Act. However, recently, in the year 2016, the Benami transactions reform act was amended as the Act itself with 72 sections in it.
In addition to A Benami Transaction, the income tax laws also began to attract penalties on the Benami properties. This Benami Transactions Prohibition Act was introduced to suppress illicit and corrupt money, nonetheless, the required rules and regulations were never enforced.
But, as the Benami’s Amendment Act in 2016 was implemented, dealing with the Benami properties seemed possible as the Benamidar were liable to punishment if they took advantage of the law, unlawfully.
What Are The Penalties Of Benami Transaction Under The Benami Act?
Confiscating the land from the owner of the property is the basic penalty under the Benami Transaction Act. Other than that:
- There could be 1 to 7 years of imprisonment with 25% of the property’s fair market value to be levied if avoid paying statutory dues or preventing payment
- In case of false information, one is liable for an imprisonment of 6 months to 5 years and up to 10% of the property’s fair market value
What Are The Key Modifications Rendered By The Benami Law Reform Of Real Estate?
As the Benami Property Transactions Act was forced back in 2016, it didn’t really show any potential impact on most investors. However, listed below are the key modifications that were rendered by the law:
The change in the punishment – According to the old Benami rule, as for punishment, only the Benami property in question was confiscated by the Government. However, in the new law of 2016, if a property is deemed as “Benami,” it gets invested with the government without any notice and the legal owner is liable to pay a fine of up to 25% of the fair market value for the property along with imprisonment for up to 7 years.
The change in the transactions – The new Benami Law now covers the transaction that was earlier provided by the children while the property was held by the family on behalf of the father/mother as a sign of respect.
The government can attach the land – If an innocent buyer buys a Benami property from a Benamidar, the government could attach the land irrespective of if you’ve paid a considerable fee from declared and established sources.
To Conclude: Instances Of The Benami Transactions
- There is a limit as to how much of the agricultural land an individual or the family can hold back. In places where the limit is reached, a person can purchase the property in the name of another person, but with the consideration of the property.
- A person who holds access to price-sensitive information of a company will not be allowed to trade in the shares of the company. This is why there is a third unrelated party involved to take the funds to trade on their behalf.