Bad times ahead for Benami Property Owners

After the demonetization drive, the government is all set to come down heavily on benami property owners. The prime minister has hinted in various recent speeches that the next target for the government will be to root out the menace of benami properties thereby ensuring a cleaner real estate sector.

The first step towards crushing the benami property menace was put in place in November when the government enacted the Benami Transactions (Prohibition) Amendment Act, 2016. The act amended the existing Benami Transactions (Prohibition) Act, 1988 and has been active from 1st November 2016. Under the rules and provisions of the Benami Transactions (Prohibition) Act, benami property owners can face a stringent fine and a possible jail term. The act allows for a rigorous imprisonment of up to seven years and a fine extending to 25 per cent of the fair market value of the benami property.

Real estate experts at various popular marketplaces like property.sulekha.com and other realty discussions forums suggest that if the government can come down strictly on benami property ownership, it would lead to a more transparent real estate sector. 

Understanding benami property: Benami comes from the hindi word ‘benaam’ meaning no name. Many individuals buy property not in their own name but in the name of others to avoid tax payment on the money. Usually unaccounted money on which no tax has been paid to the government is used for benami property transactions. Often fake names and identities are also used by tax evaders to make real estate purchases under benami transactions.

How government loses out in benami transactions? When a buyer makes use of unaccounted money or black money to make a property investment, the government loses out on the possible taxation on the money. The money used is also usually earned by unlawful means like corruption. By investing in property, the benami property owner not only saves on tax and parks liquid cash in property but also gets advantage of the property price escalation over time. With such benami transaction in play, real estate prices also witness a steep increase making it difficult for the common man to purchase property. 

The new regulations against benami property owners: With new regulations of the Benami Transactions (Prohibition) Amendment Act, 2016, benami property owners are going to face tough times ahead.

• Properties held benami are liable for confiscation by the government without any compensation
• Benami property owners can be punished with a jail term of 1 to 7 years and a fine up to 25% of the fair market value of the property.
• Giving any false information or document for a benami property can lead to a jail term for 6 months to 5 years and a fine of 10% of the market value of the property.
• The benamidar or the illegal property owner can not re-transfer the benami property held by him to the beneficial owner.