BENAMI PROPERTY - IT'S ALL IN THE NAME!

By Ruma Dubey

This salvo proposed to be fired against benami property could not have come at a better time. At a time when demonetization drive has as such dealt a body blow to the sector, this going after the benami property with tongs and knives is perfect.

Benami in simple Hindi means that which does not have a name. So benami property means that which does not have an owner. We usually see in India that those with stashes of unaccounted money, black, use the money to buy property in the name of their maids, driver, peon and gardener and in the name of all the possible helps around. It could even be a ficticious name – someone who is not even real.

The Prohibition of Benami Property Transactions Act (PBPT Act) came into effect this month and this Act has defined benami as that property which is held by one person but paid for by another person. Under the Act, the strongest point is that the real owner cannot get his property back from the benamidar – the one in whose name property is bought. It can be confiscated by the Govt which is why Modi said that “it is the property of the Govt!”

This form of buying is usually seen in agriculture land where cash is given and property is registered in someone else’s name. When the demonetization was announced, surely a lot of them would have rushed to buy land and maybe apartments too in benami transactions; for them now the noose will turn tight.

If caught, the punishment is stringent. There is 7 years imprisonment for those who have invested in benami property and a penalty of 25% of the fair market value of the property. So a benami property investor whose property is valued at Rs.2 crore, if caught will have to shell out Rs.50 lakh as penalty and also got to prison for seven years.

Such benami transactions do not happen without colluding with many others. So the Act provides for punishment to them too – 5 years prison and 10% penalty. Thus many who have invested in such properties will probably forego the asset rather than go to jail.

The biggest challenge though will be detection and then punishment. Almost 99% of these properties are bought in cash and hence there being no paper trail, would be very difficult to actually get to the ‘original’ owner. There is also the question of – form when? What would be the cut off date from when property transactions would be looked into. If they go back in the 80s and 90s, it would be an impossible task. But if from 2015 or 2016, it would be much easier. It’s like this: when we go to for registering the property, no questions are asked there about the source of funding the property; it could be 100% cash and the registration office would care two hoots. Though the person in whose name the property is being bought needs to compulsorily give his PAN Card number and that is how the IT department can track – mismatch between source of income and property purchase would invite a scrutiny. Thus tracking of such benami transactions can happen only in the digitization era.

In the next few days, we will see a lot of property – land as well as apartments, being sold for a song, 30-40% lower than the market value. Beware of such property; it might be tempting to buy an apartment in Bandra, sea-facing one that too, being sold for half the price. It could be benami and you might have the white money to buy it but be careful as you could be caught as someone colluding with such fraudsters.

Yes, the realty market is sure to see some major shakeup; more so in land transactions than flats.

This is an excellent proposal to go after these benami property owners but the irony of it all – it is politicians who own majority of such benami properties. Will they ever get caught?

We hope that this Benami property Act is implemented right and not the hotchpotch way in which demonetization was done, a logistical nightmare for all involved.