- Why in news?
- What is benami transaction?
- Aim of the bill
- The Bill seeks to
- Salient features of the bill
- Implications/Significance of the bill
- Way ahead
Why in news?
- The Benami Transactions (Prohibition) Amendment Act, 2016, designed to curb black money and passed by parliament in August 2016, came into effect.
- The new law amended the Benami Transactions Act, 1988 and renamed as the Prohibition of Benami Property Transactions (PBPT) Act, 1988.
- Though the Benami Transactions (Prohibition) Act, 1988 has been on the statute book since more than 28 years, the same could not be made operational because of certain inherent defects. With a view to providing effective regime for prohibition of benami transactions, the said Act was amended through the Benami Transactions (Prohibition) Amended Act, 2016.
- The current government had introduced Benami Transactions (Prohibition) Amendment Bill in July 2016 in parliament. This bill has been now passed in both the houses of parliament and will come into effect from 1 November 2016.
PBPT Act, 1988:
- The Prohibition of Benami Property Transactions Act, 1988 (PBPT Act) defines benami transactions, prohibits them and further provides that violation of the PBPT Act is punishable with imprisonment and fine.
- The PBPT Act prohibits recovery of the property held benami from benamidar by the real owner.
- Properties held benami are liable for confiscation by the Government without payment of compensation.
- An appellate mechanism has been provided under the PBPT Act in the form of Adjudicating Authority and Appellate Tribunal.
What is benami transaction?
- The benami (without a name) transaction refers to property purchased by a person in the name of some other person.
- The person on whose name the property has been purchased is called the benamdar and the property so purchased is called the benami property. The person who finances the deal is the real owner.
- Therefore, in a benami transaction, the name of the person who paid the money is not mentioned. Directly or indirectly, the benami transaction is done to benefit the one who pays.
Aim of the bill:
- The core aim of the act is to route the unaccounted money into the financial system; seize Benami properties and prosecute / punish those who are involved in these properties.
The Bill seeks to:
- Amend the definition of benami transactions,
- Establish adjudicating authorities and an Appellate Tribunal to deal with benami transactions, and
- Specify the penalty for entering into benami transactions.
Salient features of the bill:
Definition of benami transaction:
- The Act defines a benami transaction as a transaction where a property is held by or transferred to a person, but has been provided for or paid by another person.
- The Bill amends this definition to add other transactions which qualify as benami, such as property transactions where:
- The transaction is made in a fictitious name,
- The owner is not aware of denies knowledge of the ownership of the property, or
- The person providing the consideration for the property is not traceable.
What isn’t a benami transaction as per the bill?
The Bill also specifies certain cases will be exempt from the definition of a benami transaction. These include cases when a property is held by:
- A member of a Hindu undivided family, and is being held for his or another family member’s benefit, and has been provided for or paid off from sources of income of that family;
- A person in a fiduciary capacity;
- A person in the name of his spouse or child, and the property has been paid for from the person’s income.
- Properties held benami are liable for confiscation by government without compensation.
- Persons indulging in benami transactions may face up to 7 years’ imprisonment and fine.
- Furnishing false information is punishable by imprisonment up to 5 years and fine.
- The Bill seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions: (i) Initiating Officer, (ii) Approving Authority, (iii) Administrator and (iv) Adjudicating Authority.
- The Bill also seeks to establish an Appellate Tribunal to hear appeals against any orders passed by the Adjudicating Authority.
- Appeals against orders of the Appellate Tribunal will lie to the high court.
- Initiating Officer may pass an order to continue holding property and may then refer case to Adjudicating Authority which will then examine evidence and pass an order.
- Appellate Tribunal will hear appeals against orders of Adjudicating Authority.
- High Court can hear appeals against orders of Appellate Tribunal.
Implications/Significance of the bill:
- This law will have long term impacts on real estate industry in the country and will increase the practice of including the correct name in property transactions.
- This in turn would bring transparency in residential market. With an increased transparency, the risks would be minimized and residential properties transactions would get boost.
- It will also boost the confidence of lenders (banks or private individuals).
- The stringent law would also bring down the prices of real estate because such transactions are done by cash rich investors to park their unaccounted wealth in real estate.
- Moreover, this will also increase the tax revenue for the Government by curbing unaccounted money into the system.
- In the short term, it will lead to a reduction in transaction volumes.
- However, in the long term it will make India a more attractive investment destination, aligning transactions with ethical standards and will increase international institutional investors and financial institutions participation in this sector.
- Benami transactions have been a bane of the Indian economy since the 1980s, requiring a comprehensive legislation to curb the effects of such transactions which cripple a growing economy.
- This Amendment Act has been passed in the midst of growing public sentiments against corruption and a drive against black money in India.
- This is a revolutionary legislation, and in years to come it can curb the black money generation.