All about Benami Transactions

Benami is a familiar term. We, the middle-class Indians are born cursing politicians and bureaucrats who own Benami properties, isn’t it? It’s time to know more about Mr. Benamidar, the different shades of Benami Transactions as per The Prohibition of Benami Property Transactions Act! Benami covers both movable and immovable properties.

Shade A – A property is purchased by Kallappa but registered in the name of Sullappa. The property is held by Sullappa (called Benamidar) for the immediate or future benefit of Kallappa (called as Beneficial Owner)

Shade B – A property is registered in a fictitious name, usually in the name of a fictitious firm or an entity. This way, a different appearance to the property owner is given to conceal the real owners’ identity.

Shade C – A property is purchased in someone’s name where such person is not aware of, or, denies knowledge of, ownership. The best example, registering property in maids or driver’s names, or those who blindly sign on the dotted lines. In a recent raid by the Tax department, they came on record stating “During the search, several of the employees, whose names were used as shareholders and directors, have admitted that they were not aware of such companies and had given their Aadhaar card and digital signature to the employer in good faith

Shade D – A property is purchased by someone, but the payment is done by another person who is not traceable or is fictitious.

Exceptions – The following are not considered as Benami Transactions:

  1. Individual buying property in the name of his spouse or children and the consideration has been paid out of the known sources of the individual
  2. Individual buying property in the name of his brother or sister or lineal ascendant or descendant as joint owners and the consideration for such property has been paid out of the known sources of the individual.
  3. Hindu Undivided Family (HUF) – Karta holding the property for which the amount is paid by the known sources of the HUF.
  4. Trust – Trustee holding the property in the fiduciary capacity for the benefit of the trust.

 Who does the Benami transactions and why?

Needless to elaborate, everyone knows this. A politician, bureaucrat or a private company, or any person who has earned or amassed money through illegal or illegitimate means, which can’t be kept with them, hence, hoard such wealth in some other persons’ name.

Or else, tell me, how to regularize kickbacks or bribes? So, the easy option –invest in a property in Benami’s name, I mean, in the name of a trusted lieutenant or sidekick.

Cool. Is this kind of Benami Transactions allowed in India?

All sorts of Benami transactions are prohibited in India. Whoever enters into such transactions shall be punishable with jail term which may extend to 7 years, with fine or with both.

Additionally, such properties shall be liable to be confiscated by the Central Government.

Further, Benamidar is prohibited from transferring such property to the beneficial owner.

The Adjudicating Authority – The Income Tax department has a separate wing to monitor Benami transactions. They can call for information, impound documents, conduct an enquiry, attach the properties, etc.

Who should be scared?

We, the common people need not worry about this Act. We neither have illegal money nor accommodate those who indulge in bribery or corruption. This piece of information is good to know for knowledge purposes and nothing more!

Having said that if anyone is trying to do this, please Beware! Mark my words – you will land in trouble for sure. Get rid of such things forthwith. 

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About B E Kumar Prasad

B E Kumar Prasad
He is a Practicing Chartered Accountant in Bengaluru, India. He has 25+ years of experience in income tax, business setup, and NRI matters. He is also an Insolvency Professional and Registered Valuer (F&SA).Prasad welcomes your comments and questions. Please email him at [email protected]

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