Demonetisation has taken many twists and turns. Whether the economy has benefited through this strenuous exercise or it's just been a damp squib—the picture will become apparent only in the next 3 quarters. However, what can be said with a lot more confidence is that the demonetisation has turned the country upside down. It seems now those hoarding cash will always be in two minds—whether to come clean or wait for the right opportunity to channelise the black money into the mainstream.

The Government is planning to blockade these channels now.

Real estate is an asset class that has always helped black-money holders to purge their sins. It’s been an old practice to buy properties in the name of a person who would be the owner of the property just for the legal records. Of course, there’s no official estimate as to exactly how much money has infiltrated the mainstream through such deals. Such Benami (Anonymous) transactions hurt the economy in 3 ways…
 

1. Benami properties provide black-money holders with an escape route.
2. It hurts the real estate market negatively as prices keep climbing.
3. The income generated on such properties increase the supply of black money in the system.

Sometimes, these secret deals happen in the name of fictitious persons as well. Everything including property deeds, personal identities, and address proofs would look real, but deeper investigation surfaces the truth.

After December 30, 2016, the Government is likely to focus on nabbing these Benami property holders. 

The Benami Transactions (Prohibition) Amendment Act, 2016 came into effect on November 01, 2016. This has empowered authorities to act sternly against the beneficial owner and the benamidars, a person in whose name the property is held.

It’s noteworthy, the term property doesn’t mean only real estate. 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 would 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 acquires enormous importance now?

Simply because The Benami Transactions (Prohibition) Amendment Act, 2016 goes much beyond real estate. The Government may invoke this for punishing those who have deposited their money in someone else’s account, post demonetisation. Now you can imagine how powerful the Act would be.

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.

 
However let’s not forget, under all circumstances mentioned above which serve as ‘exceptional’, sources of funds matter a lot. If the sources of funds are illegitimate or untraceable, the exceptions referred to above, may be worthless.

PM Modi has repeatedly said in his speeches that after December 30, 2016, the problems of the common man will be resolved, but those of black-money holders would start to escalate.  While the former is debatable, the latter seems to be an ominous warning for black-money holders and beneficial owners of benami properties.

While this might increase the burden on India's judiciary system, the necessity for the rigorous implementation of such laws can’t be denied or even undermined. The parallel reforms in the legal systems and procedures look inevitable.

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