Holding Benami Property? Here’s Why You Need To Be Careful

PersonalFN
Aug 24, 2017 · 4 min read

Are you a property owner with a clean tax chit?

If yes, you’re in the clear.

For those who haven’t, there’s a storm approaching.

It appears the Government has decided to take action against benami property holders -Operation Clean Money is in full swing.

The Income-Tax (I-T) Department has decided to look into the unaccounted finances of property owners.

Specifically, cases where:

Some naysayers believe this might result in tax-terrorism, as I-T officials could misuse their authority. Tax terrorism is a popular term often used to denote an adversarial tax environment.

However, the Department’s assurance is to follow a non-meddling approach during assessments, only enforcing actions with substantial evidence.

By collating spending and investment related information of individuals, the department is identifying trends, which is then being used to create a tax-evader’s profile. Irregularities are being flagged. Data on cash deposits obtained during demonetisation is being integrated to check the consistency of existing information. The Department has identified 18 lakh people whose cash deposits during demonetisation didn’t conform with their income profile. Nearly 5.5 lakh people are likely to face another round of scrutiny.

Now, let’s shed some light on what alludes benami transactions…

The Benami Transactions (Prohibition) Amendment Act, 2016 has explicitly defined ‘property’ as the “assets of any kind, whether movable or immovable, tangible or intangible, corporeal or incorporeal and includes any right or interest or legal documents or instruments evidencing title to or interest in the property and where the property is capable of conversion into some other form, then the property in the converted form and also includes the proceeds from the property.”

Therefore, ‘benami property’ means any property which is the subject matter of a benami transaction and also includes the proceeds from such property.

So what are the consequences if one is found guilty?

  • The beneficial owner will have to serve rigorous imprisonment upto 7 years
  • A fine of upto 25% of the fair market value of the property

Any person giving false information (which in all likelihood could be the benamidar) shall also be liable to serve:

  • Rigorous imprisonment upto 5 years
  • And the fine of upto 10% of the fair market value of the property

What will happen to the property?

After following the due diligence and legal procedures, the authorities can attach, confiscate, and alienate the properties.

Why does this law acquire enormous importance now?

Simply because The Benami Transactions (Prohibition) Amendment Act, 2016 goes much beyond real estate. The Government may invoke this Act to punish citizens who have deposited personal funds in another person’s account post demonetisation. Now imagine the powerful ramifications of this Act once it’s implemented.

The property won’t be classified as a benami property if:

A person standing in a fiduciary capacity holds the property for the benefit of someone else. For example, a trustee, executor, partner, director of a company, a depository or a participant as an agent of a depository under the Depositories Act, 1996 and any other person as may be notified by the Central Government for this purpose.

  • A Karta or a member of a Hindu Undivided Family (HUF) holds the property for the benefit of other members of the family
  • A person holds property in the name of his wife or children
  • A person holds the property in the name of his brother or sister or lineal ascendant or descendant, where the names of a brother or sister or lineal ascendant or descendant and the individual appear as joint-owners in any document.

Can I-T department knock your door any day? Yes, it can, under the conditions given below:

  • You frequently travel abroad, but do not pay taxes
  • You own high-value assets and show disproportionately low income
  • You buy assets in the name of your relatives to minimise your tax liability
  • If you live a lifestyle that doesn’t justify the income group you claim to fall under

The tables have turned for citizens who bet on the wrong horse. Heads, I-T Department wins; tails, black money holders lose.

This time the I-T department appears unequivocal and resolute in its intent.

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