When you sell a property next time, expect a letter from the Income-Tax (I-T) department, asking you to explain when you acquired it and the source of funds. This could be one of the ways the government could zero in on benami property holders.

Lawyers say that earlier it was usual practice by the department to call buyers to explain sources of funds whenever someone purchased a house. It’s possible, the department can now call sellers, too.

After the Income Declaration Scheme (IDS), 2016, demonetisation and giving another chance to black money hoarders to deposit cash and pay a penalty, the government is expected to go after people with many properties. In a speech in Goa on November 13, Prime Minister Narendra Modi had said benami properties are next on his radar to eradicate corruption and black money.

Be cautious when helping relatives

A benami property means assets are held by a person but the consideration for these has been paid by another. There are, however, exceptions. You can pay for a property that’s entirely in the name of your spouse or children. But, you cannot pay for a property that will be in the name of your siblings, parents or any other lineal ascendant or descendant, unless you are a joint owner. That applies even if the money is legitimate. But, there is a way out. Tax experts say an individual can buy the property in his name and later gift it to the close relative. It will be more expensive as the person will need to transfer the ownership through a gift deed and pay stamp duty.

If the property is held by a ‘karta’ of a Hindu Undivided Family and individuals who have fiduciary responsibility such as trustees, executors, partners, directors of companies and others, the asset will not be considered benami.

Under the Benami Transaction (Prohibition) Act, ‘property’ has been defined comprehensively to include not only immovable assets such as land, flat or house but also movable assets such as gold, stocks, mutual fund holdings and even bank deposits. One significant change is that it covers the conversion of the property, which was not covered in the old law. If the property is sold, then the proceeds from it are also considered benami.

The government knows

Real estate is the biggest area where many channel their black money. This is done using various methods. Property is bought in the name of close relatives or even servants or drivers to evade detection by tax authorities. “Typically, individuals with black money buy large tracts of land that can be developed in the future or they buy high-end properties,” says Amit Oberoi, national director, knowledge systems at Colliers International (India). While there’s no exact figure on the number of benami transactions, experts feel that it would be 25-30 per cent of all high-end property sale. In the case of land, it could be higher.

To tighten screws on such transactions, the government has taken many initiatives and is sitting on a huge data repository. Explains Neha Malhotra, executive director at Nangia & Co: The Centre has revised norms making it mandatory for an individual to quote the permanent account number (PAN) on several high-value transactions, annual information filing is required by financial institutions and property registration has been made more stringent. There is also financial information sharing treaties with other countries. “It’s difficult for big transactions to go unnoticed,” says Malhotra. In fact, the department will soon be scanning social media posts of individuals. That’s part of the I-T department’s Project Insight programme.

Based on the information and data available, the government can mine high-value transactions. Suppose someone has bought a property worth Rs 5 crore in his servant’s name and this property gets shortlisted in the search. The tax authorities will then look into the ‘benamidar’s’ (servant’s) income sources to ascertain whether he can afford such a purchase. Once that possibility is ruled out, they will set out to find the actual owner.

Many tax and legal experts feel once the demonetisation drive ends, the I-T department will start sending notices to benami property holders, based on the data it has. After closure of IDS, the window to declare benami properties and other unaccountable assets is closed. The only way forward for property owners is to pay the fine. Else, they can also face imprisonment. Apart from awarding imprisonment of up to seven years to the beneficial owner and the benamidar, others involved in the deal, too, will not be spared. A fine of up to a fourth of the market value of the property can be imposed on all parties.

Law gets more teeth

In the previous version of the Act, the Centre was supposed to issue a separate notification on the authorities that would initiate action and how the different parties will be dealt with. It didn’t happen, according to legal experts. Explains Sharanya Ranga, partner at Advaya Legal: The amended Act lays down the entire process of bringing down different parties involved in ‘benami’ property to book. It names different authorities — the initiating officer, the approving authority, the administrator and the adjudicating authority — which will handle the cases. Officials of the income tax department will be the main authorities handling benami property cases.

The Act not only prescribes punishment for the beneficiary of benami property but also for the person who holds the title and any other parties involved.