If you are planning to enter into a benami property transaction, beware of the proposed amendment in the legislation. You might not only lose your property, but you may also have to serve a jail term of 6 months to 2 years and pay a fine of up to 25% of the market value of the property.
A proposed law christened through a Persian word is set to change the way many people in the country seal property deals. Benami - Persian for 'without name'- real estate deals may be history once the Benami Transactions (Prohibition) Bill, 2011, tabled in Parliament, becomes a law. It will apply across the country, except Jammu & Kashmir.
The government has taken this step in view of public anger against black money. Real estate, especially land, has for long been a preferred place for parking black money.
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Any property held by a person on behalf of the real owner for any gain is called benami. A property transaction in a fictitious name or in which the owner claims no knowledge of the arrangement is also a benami deal and will be covered by the proposed law. Even movable properties like gold and company stocks will come under the purview of benami transactions.
"The Bill defines benami property as one belonging to a non-existent person or a person without known sources of income. In other words, the property is not in the name of the person who has paid the money," says Anshul Jain, CEO, DTZ India, a real estate consultancy.
|Properties bought by individuals in the name of spouse, children or siblings do not come under the purview of the proposed benami transactions law.|
Benami transactions are illegal under the Benami Transactions (Prohibition) Act, 1988, as well. However, the existing law does not lay down detailed rules or gives the government power to confiscate benami properties.MUST READ:Real Estate offering better returns than gold
"The 20-year-old Act is still to come into effect as rules to operationalise it could not be framed. The rules were to be framed by the Central Board of Direct Taxes, the implementing authority for the law," says Jain.
The proposed law has elaborate provisions for benami transactions, consequences of entering into such a transaction and the procedure for implementing the law. It seeks to give the government power to confiscate benami properties through a competent authority. No compensation will be paid for such properties. Also, it will not be possible to recover the confiscated property. The Bill also provides for an appellate tribunal whose orders will be open to appeal in High Courts.
"All persons in whose name such properties are held (invariably employees, distant relatives or friends), the actual owner and those who facilitate such transactions or give false evidence will be liable for fine, imprisonment and property confiscation," says Naushad Panjwani, executive director, Knight Frank India, a realty consultant.
Those involved, including the real owner and the person who holds the property, can be awarded a jail term along with a fine. Legal heirs of an individual owning benami properties will be liable after his death. Those who knowingly help carry out such transactions, such as brokers, lawyers and accountants, will also be liable for prosecution.
The proposed law does not have any provision for converting a benami property into a legal one by establishing ownership rights or paying a penalty. It clearly says that a benami property cannot be re-transferred to the original owner or any other person.
However, if you have bought properties in the name of your spouse or children, there is no need to worry. The Bill does not cover deals entered into in the name of spouse, siblings or any lineal ascendant or descendant.
"The new legislation will bring the much-needed transparency into the system and is expected to control the flow of 'unaccounted funds' into the real estate sector," says Jain.
"The real estate industry and all stakeholders will benefit from the new legislation. The end users will gain as title risks will be minimised. These provisions will lay the ground for state governments' commitment to ensuring clear property titles," says Panjwani.
Benami properties which earlier managed to escape the judicial system due to vague legislation will become open to challenge in courts. The proposed legislation will result in more such properties being confiscated, either for auction or use by the government.
So, what impact will the move have on supply of properties in the market? Not much, say experts.
"The number of benami land transactions are much more compared to built-up property deals. Land has always been the preferred instrument for long-term property investments because its prices are less volatile and rise faster. A lot of investments have been made in plots, both at strategic locations within the city and on the fringes, by those with privileged access to information about upcoming infrastructure projects and other market drivers," says Ashutosh Limaye, head, real estate intelligence service, Jones Lang LaSalle India.
"Plots that are released for auction by the proposed law could add supply in unexpected locations. However, individual built-up properties eventually released into the market after confiscation are unlikely to be sufficient in number to make a discernible impact," says Limaye.
Though the new benami law may increase supply, property rates are not expected to decline. "There will not be any impact on property rates as the legislation is a step forward in ensuring transparent ownership of property, which is not connected to property rates," says DTZ's Jain.
Whether higher barriers to parking of black money in properties impact prices or not, the new law will bring the realty sector closer to a more transparent system. End users will gain from the change.