In view of increasing number of cases involving tax evasion and use of slush funds involving sale and purchase of benami properties, the government is planning to amend the Benami Transactions (Prohibition) Act. The amendment will empower the government to confiscate any property that is declared benami by the authorities.
What is benami property
Any property that is bought by an individual in the name of another person in order to evade tax is known as benami property. Here the money is paid by one person, while the registration is done in another person’s name. Through such a transaction, a person becomes the virtual owner of a property, though legally the property is not reported as sold or bought. As a result, the stamp duty and registration charges are not paid to the government.
Implications of buying a benami property
If you buy a benami property, which is not registered in the name of the seller from whom you are buying the property, your transaction will be considered invalid. This is because the property keeps changing ownership, but virtually. Under the Benami Transactions (Prohibition) Act, 1988, buying and selling a benami property is illegal. The Act prohibits such transaction.
What does the amendment entail
If the proposed amendment is implemented, it would ensure that properties have clear titles and registrations are genuine.
Usually, people register properties in other people’s name to evade tax, but once the amendment comes through they will not be able to hide registration details and evade tax. If proved benami, the property will be confiscated, so it may mean a loss to the owner.
What is not under the act’s ambit
In case of a Hindu Undivided Family, if the property is bought for the benefit of family members, the present Act does not consider it benami. Also, if a person is made a trustee of a property and the property is held for the benefit of another person, the transaction again would not come under the purview of the Act.
What can genuine buyers do
If you are not present in the city where the property for sale is located, you can use power of attorney to buy. Through a power of attorney, someone can buy the property on your behalf using your funds. However, the property should be registered in your name. A record of the funds transfer submitted to the authorities will prove that the transaction is done by your legally earned money. This way you can ensure that the property bought is not a benami property.