The agenda for the present government is to reduce the amount of Black money circulation. we already have theBlack Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015 which is aimed at bringing back money from abroad.
The other big sector where black money exists is the Real Estate sector. But to some extent it is being regulated by enacting Real estate regulation and development act 2016. What remains now is Benami transactions.
Problems with earlier act.
- The penalty for entering into benami transactions is imprisonment up to three years, or a fine, or both
- Enforcement of the act was little more long winded, in terms of confiscation
In the recent budget, the Income disclosure scheme was brought about, where people were encouraged to disclose black money and pay the tax on it. The reaction has been very muted.
Provisions in the new bill
- whoever is found guilty of the offence of benami transaction shall be punishable with rigorous imprisonment for a term which shall not be less than one year, but which may extend to seven years and shall also be liable to fine which may extend to 25 per cent of the fair market value of the property.
- Government’s power and procedure to confiscate benami property.
- relaxations to those who are voluntarily disclosing their income.
- The Bill seeks to establish four authorities to conduct inquiries or investigations regarding benami transactions: (i) Initiating Officer, (ii) Approving Authority, (iii) Administrator and (iv) Adjudicating Authority.
- The Initiating Officer may hold the property for 90 days from the date of issue of the notice, subject to permission from the Approving Authority.
- The process of confiscation has been laid out very clearly
Bill specifies certain cases will be exempt from the definition of a benami transaction.
- These include cases when a property is held by: (i) a member of a Hindu undivided family, and is being held for his or another family member’s benefit, and has been provided for or paid off from sources of income of that family; (ii) a person in a fiduciary capacity; (iii) a person in the name of his spouse or child, and the property has been paid for from the person’s income
In 1951, after India became Republic, Economists calculated that 10% of GDP was getting into black channels. subsequently in 1970s it turned out to be 30% and it got exacerbated. At present 60% of the GDP is getting converted and shifting to black channels.
Threats to black money and other fundings from black money – Drugs, Arms, terrorists
The scope for getting in lot more people to disclose will increase, if the fear of imprisonment is taken away.
Government’s efforts to curb black money
In India, historically the two channels where the black money has gone is either Real estate or Gold.
- At present government is trying to curb foreign money through Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015.
- In addition to it, the Benami bill is to curb domestic black money. With this the government has tried to make two pronged attack.
- The recent Gold Monetisation scheme is trying to bring back gold held with households into financial system.
Implications of Benami Transactions Prohibition Amendment Bill
- In Real estate, the financial transactions and black money is very rampant. The Real estate bill which regulates the market and with this Benami transactions prohibition bill, the government can control the layering that happens, where lot of black money is converted to white.
- This can control the inflation on property prices. prices are artificially high in Real estate. With the Real estate bill and the Benami transactions prohibition bill in place, we may see the corrections in the property prices
The government is trying systematically to cut down those channels where black money is used. As a moral responsibility of the individual, we should insist on white transactions and should say sno to black transactions. Stopping the supply of black money will reduce the demand of black money. This is a revolutionary legislation, and in years to come it can curb the black money generation.