Understanding Benami Law in India
2nd May 2018
Jugal Gala - DVS Advisors LLP
Benami Law law regulates illegal property holdings in India and mandates strict action against the fictitious property holders. Jugal Gala from MSI’s Indian accounting member DVS Advisors LLP (Chennai) provides an introduction to the law and how it affects your investment.
INTRODUCTION AND HISTORY
- “Benami” is a Hindi word meaning “without name” or “nameless”
- The Act governing the Benami transaction in India is the Prohibition of Benami Property Transactions Act, 2016 (“the Benami Act”)
- The Act uses the word “benami” to define a transaction in which the actual beneficiary is not the one in whose name the property is purchased i.e. basically an identity cloak viz. “the benamidar”
- The actual beneficiary is the person who is financing the deal, who usually procures the property papers and additionally retains the power of attorney to sell the property
- The old bill relating to benami transactions was inadequate with only nine sections, passed in 1988
- After BJP Government came into power, Honourable Finance Minister Arun Jaitley introduced the amended bill with 71 sections in Lok Sabha on 13th May, 2015
- The amendments sought to block escape routes for all benami transactions since 1988, and were passed in Parliament some months later.
- The Central Board for Direct Taxes (CBDT) has now notified that the provisions of the Benami Act would come into effect from November 1, 2016, and that it has been renamed the Act as the Prohibition of Benami Property Transactions Act, 2016 (PBPT Act).
- The Benami Act shall extend to whole of India except for State of Jammu and Kashmir
OBJECTIVES OF NEW LAW
- To plug lacunae in the 1988 Act by clearly defining what constitute benami transactions
- To establish the relevant adjudicating authorities and
- To set up an appellate tribunal to deal with benami transactions, appeals and specifying penalty for transgressions
WHAT ARE BENAMI TRANSACTIONS
- Property transferred to or held by one person and the consideration for such property is paid by another person and the property is held for the immediate or future benefits, whether direct or indirect, of the person who has paid the consideration
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