India hunts hidden cash in corruption blitz

The law banning so-called "benami" transactions, makes it illegal for assets to be hidden in another's name

NEW DELH:

Mansions owned by maids, gardeners and drivers until now have aroused little suspicion in India, where the wealthy have long hidden fortunes in the names of lowly-paid staff to avoid paying tax.

But as the government broadens its crackdown on corruption, a new law promises to end the widespread practise and hundreds of suspicious bank accounts are under investigation.

"There's been an overnight change in the system," real estate lawyer Naresh Gupta told AFP, describing the new rules as "very draconian".

"Investigators can question anyone and ask any government department for information about suspects."

The law banning so-called "benami" transactions, making it illegal for assets to be hidden in another's name, came into effect in November as part a twin strike by the government to flush out undeclared "black money" hoarded by tax evaders.

It followed a shock decision by Prime Minister Narendra Modi to withdraw high-value bank notes from circulation, compelling millions to join the formal banking sector for the first time. Previously, around 90 per cent of everyday transactions in India were in cash.

Holding real estate in someone else's name has been a particularly popular avenue for those seeking to legitimise black money and dodge their tax dues. Those caught out could have their wealth seized, face a seven-year jail term and pay hefty fines equivalent to 25 percent of the asset's value.

Government officials say 235 suspicious accounts were under investigation for alleged benami activity in mid February, with more than half frozen and properties seized.

But Modi, who was elected in 2014 on a pledge to wipe out corruption and kickstart the economy, has promised more scalps as the dragnet widens. "It has some very tough provisions. Those holding such property should start consulting their accountants," he said in a February speech.

'They will go after everything' 

The law was in step with November's controversial "demonetisation", which forced Indians to turn in their old, devalued banknotes in exchange for new ones. Those declaring suspiciously-large sums were red flagged for audit by the tax department, which often uncovered complex and implausible webs of benami holdings.

In one case, the department said INR33 million (US$500,000) were hidden in the name of a woman who wasn't even aware the account existed. In another instance, US$9 million was spread across 20 fictitious accounts.

A network of jewellers, meanwhile, was busted spiriting black money into shell companies ostensibly owned by a day labourer, local media reported. "Even within families, people want to hide their assets from others so will purchase it in someone else's name," said Abhishek Goenka from tax and audit firm PwC India.

One businessman bought a sprawling mansion in a swish Delhi postcode and registered the deed under a company whose CEO also happened to be his maid.

A young couple meanwhile purchased a US$1.2 million house under someone else's name to avoid explaining how two civil servants could afford such a place, a person close to the transactions told AFP.

"By registering the property in someone else's name, unaccounted income gets accounted for," said Goenka. "If at a later date it's then sold on to a benami buyer, the cycle perpetuates."

There is no hard data on what percentage of transactions in India are benami and could fall foul of this law. But experts agree the practice is rife and long overdue for scrutiny.

"After the note ban, this was the natural next step," said Uday Ved, a Mumbai-based tax advisor and former KMPG head of tax, in reference to the Modi government's anti-benami blitz. "Now the law is in effect they will go after cash, real estate, gold, everything."