The finance ministry has decided to clamp down on benami transactions by framing strict rules under the Benami Transactions (Prohibition ) Act, 1988.

In benami ownership, the title of the property is in one party's name and the real ownership is in another party's name.

The Act, which was brought in to replace Section 281 A of the Income Tax Act, 1961, remained on paper till now because rules were not notified to implement its provisions.

There are usually two types of benami transactions. In the first, A sells a property to B, but the sale deed mentions C as the buyer.

In the second, the ownership of the property or asset continues with the original party, though it is shown as sold on paper.

In both the types of benami deals, the income-tax department finds it difficult to track the real owner.

The actual beneficiary escapes because it is difficult to establish any financial relationship between him and the property in question. As a result, he does not pay tax on income from the property.

The rules, which will be notified soon, will make it difficult for the benami owner of a property to evade taxes since the registered owner will either have to pay taxes for letting others use the property, or face punishment for under-declaration of income.

Benami transactions, which are most common in the real estate business, are the largest means of generating black money in the economy. In the 1990s, benami transactions moved to the stock market and other areas.

The finance ministry feels that it is losing a sizeable source of revenue because of these deals.

While there are no accurate figures on the extent of such transactions in the country, the ministry has estimated that clamping down on these deals could raise tax revenue by as much as Rs 500 crore (Rs 5 billion).

All in the name

• There are two types of benami transactions — real and sham.
• Real involves sale between two entities. The third person becomes benamidar.
• Sham benami is a sale where only papers change hands.