Unbeknown to most, handling cash hordes has just become tougher. And, the best laid plans of many cash hustlers and venal government officials to escape the authorities by simply owning the undisclosed money and paying tax on it, may no longer work.
According to a recent tribunal decision, even if undeclared cash is offered for tax, the benami wing of the Income tax (I-T) department can confiscate it and slap Benami law if the person in question can’t reveal the source of the money.
“This will impact many, as the two laws can be invoked parallelly. Property may be confiscated under the Prohibition of Benami Property Transactions Act even while tax is paid under the I-T Act. So, the Benami law jurisdiction is not ousted by the I-T Act. The acceptance under tax laws does not confer legitimacy of ownership of unreported cash or property under the Benami statute,” said senior chartered accountant Pradip Kapasi.
The development assumes significance with the last Budget letting a person sort out unexplained domestic income by proactively paying a significantly lower tax of 39% (as against 78% earlier).
Now, with the mid-May ruling by the SAFEMA tribunal — the appellate body for matters related to money-laundering and forex irregularities — one cannot overcome worries over unaccounted cash by forking out 39% tax. SAFEMA has reiterated a Kerala HC stand taken in 2025. Even after tax is paid by filing return voluntarily, I-T officials can explore the benami angle: whether the cash held was on behalf of someone else who’s the real beneficiary.
Thus, the ruling can hurt those who voluntarily pay tax to bury a problem as well as those caught with cash. Also, susceptible transactions of accommodation invoices and credits or booking of income and gains may come under the Benami lens, said Kapasi.
Such transactions entail generating fake bills or loans, with one payment leg in cheque and the other in cash, to regularise undisclosed cash.
Builders bankrolled by politicians, entities holding bribe money, and even ‘angadias’, the age-old cash couriers, can find managing cash riskier. “The ruling raises questions on the interpretation of Section 2(9)(D) of Benami law. The provision contemplates a clear distinction between the property and the consideration used for acquisition of such property. If unexplained cash found during a search is alleged to represent the consideration, treating that very cash simultaneously as the property acquired appears inconsistent. It will have wide ramifications and expose unexplained property to confiscation,” said Ashish Karundia, founder of the CA firm Ashish Karundia & Co.
The SAFEMA ruling relates to two individuals who in 2017 were caught with ₹50 lakh cash they couldn’t explain. “It’s an echo of a decade-old verdict, albeit under a different law.
The Supreme Court, in the 2017 decision of Selvi J. Jayalalitha rendered in the context of the Prevention of Corruption Act, had cautioned that merely because a property stands in the name of an I-T assessee, it cannot automatically become a ground to hold that it actually belongs to the assessee. Similarly, in the interplay of I-T and Benami law, a person’s mere ownership of unaccounted cash without substantiating the source, keeps the door open for proceedings being initiated under the Benami law,” said Harshal Bhuta, partner at P. R. Bhuta & Co which specialises in FEMA and international tax.