What is Benami Property Act and its Impact on Real Estate?

Date: 20-May,2021Last Updated: 26-September,2022
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The real estate business revolves around the concept of production, selling, and buying of land. As Louis Glickman, a philanthropist and New York-based real estate investor, says, “The best investment on Earth is Earth.” This is a universal principle that is abided by real-estate sellers as well as buyers.

Talking about ‘Benami property’ in the real-estate business context, we observe that it is a term that is extensively used every now and then. Have you thought about what it could possibly mean? And what impact does it make on real estate? This article attempts to find an answer to both questions.

  1. The term ‘Benami’ conveys the meaning of purchase of land by veiling the identity of the buyer of the property. The real owner purchases it in the name of a benamdar. A Benami transaction is a system by which a property is held by a person for which the payment is made, or consideration is provided by another person. So, what all comes under Benami properties to give it this meaning? Come, let us explore!

  2. Property bought by you for any of your family members for which the amount is paid with a traceable, known source of income can come under Benami properties.

  3. A property bought in fiduciary capacity between a trustee and a beneficiary can also come under this.

  4. Not just individual properties, properties that are jointly bought can also fit into this category. The condition is that the amount for that land purchase should be paid with a known source of income.

There are certain pointers to which attention has to be given before tagging a property as a Benami property. Some of these include:

  1. The evaluation of the motive behind the purchase

  2. The money source for the property purchase

  3. The conduct of both the buyer and seller during and after the transaction

  4. The relationship between the benamdar and owner

  5. The nature of the use of the property after the purchase

However, there are certain exemptions to these conditions as listed with reference to the Benami Transactions (Prohibition) Act. This particular came into effect in the year 1988. It was later amended in the year 2016. The immunity is achieved by certain property buyers when the land purchase is made in the name of certain specific relatives of the family under specific conditions. Mostly these kinds of transactions and activities are done to save their assets from the taxation dept.

For instance, the property can be held in the name of a son without attracting the provisions of ‘prohibition of benami property transaction act of 1988’. This can be done the consideration is made out of a known source of that particular individual. But the same cannot be done in the name of a brother’s son. This will attract Benami Act. The act was still found to have certain deficiencies. In order to address the same, the Benami Transactions (Prohibition) Bill of 2011 was formulated.

Over the years, amendments were made to the act, and there have been many noted changes. The amended Benami act accounts for certain conditions like – holding the property in the name of a parent, which is funded by the child, can attract the Benami law now. From the 1988 Benami act to the 2016 amendment made on it, many vital modifications have been observed.

This is thought to cast an impact on both old and new property buyers. The amendment has made stricter provisions like – those found guilty of the offense committed under the Benami act will be imprisoned for seven years and will be charged with a fine of about 25 percent of the property’s market value. They can also lose the property.

But these amendments and changes made to the act also come up with certain limitations.

Say, for example – Consider a scenario of you buying a property from your friend. If this friend was a benamdar of another person who has initially paid for the property, and even if you have no clue regarding the purchase of the land, you could fall into trouble. The government can attach the property you bought even if you have paid the consideration out of known sources.

Now that we have gone through the Benami Act meaning and the essence of Benami transactions, let us get into the crux of the impact of impacts on real estate.

The importance of the Benami Act :

Effect on investor confidence

The property ownership will be transparent under the Benami act. This can reduce the confidence of investors.

Effect on real estate transaction volume

The prohibition of the Benami property transaction act has an impact on land transactions and affects the volume of such real-estate transactions.

Effect on black money turning into white

Benami issue is considered an important issue because of the possibility of conversion of black money into white. It implies the idea of restriction of unaccounted cash flow into the economy.

Effect on real-estate prices

The industry of real estate is the main area of investing this unaccounted money. With the intervention of the Benami act in the field of real estate, the property price will be affected adversely.

Effect on the clear definition of Benami transaction

If found that the property purchase attracts the Benami act, there will be a proper penalty as instructed by responsible authority and law.

Effect on bringing clarity of title

The Benami act will help unveil the identity of the owner. This can put the investors in a dilemma since the actual owner will come into the picture. This will also tend to limit the participation of financial institutions.

Your mind voice must have asked you by now –

What if the Benami property is located outside your country?

For sure, the confiscation of such property will be quite a hassle, and the procedure will have certain complications. But the definition of a Benami property under the act is extensive and can account for the transaction, even in this scenario. The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act of 2015 can be applied in this case by the authorities to account for assets that are undisclosed and out of India.

So that was about “What is Benami Property and its Impact on Real Estate?”. We hope you find the article interesting!

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