Section 3 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Section 3 is the core prohibition in the Act: no person may enter into a benami transaction. It also sets the older punishment and sends transactions made on and after the commencement of the 2016 Amendment Act to a separate chapter of the Act on offences.
As per the consolidated text consulted, section 3(1) says no person shall enter into any benami transaction. Section 3(2) makes whoever does so punishable with imprisonment up to three years, or fine, or both. Section 3(3) says that a person who enters a benami transaction on and after the date of commencement of the 2016 Amendment Act is punishable under Chapter VII instead, notwithstanding sub-section (2). The consolidated copy marks two omitted sub-sections with "[ *]".
How section 3 came to read this way
Section 3 is an old section that the Benami Transactions (Prohibition) Amendment Act, 2016 amended; it was not rewritten from scratch. The amendment omitted the old sub-section (2), renumbered the old sub-section (3) as sub-section (2), inserted a new sub-section (3) and omitted the old sub-section (4). This is checked against the Gazette of India copy of the amending Act (assent 10 August 2016), where the omissions appear only as the word "omitted"; what the omitted sub-sections said is not reproduced there, so this article does not describe them. In the consolidated copy the two places are printed as "[ *]".
The 2016 changes were brought into force by notification; the date is not in the sources consulted. That matters because sub-section (3) works by reference to that date.
If you are weighing whether an arrangement you have already made, or are about to make, falls within the prohibition, a legal consultation before you act is more useful than after a notice arrives.
Sub-section (1): the prohibition
"No person shall enter into any benami transaction."
Two words in this sentence do the work. "Person" is defined in section 2(24) and includes an individual, a Hindu undivided family, a company, a firm, an association of persons or a body of individuals, and every artificial juridical person not otherwise covered. "Benami transaction" is defined in section 2(9); see our article on what a benami transaction is. The prohibition is on entering into the transaction. It is aimed at both sides: the person who pays and the person in whose name the property is held are both parties to the arrangement.
Sub-section (2): the three-year punishment
"Whoever enters into any benami transaction shall be punishable with imprisonment for a term which may extend to three years or with fine or with both."
Read it as a ceiling, not a fixed term: the court may impose up to three years, or only a fine, or both. The sub-section does not state any amount or formula for the fine. This sub-section is the original punishment of the Act, kept after renumbering. By its own wording, sub-section (3) displaces it for the later class of transactions.
Sub-section (3): transactions on and after commencement of the 2016 Act
"Whoever enters into any benami transaction on and after the date of commencement of the Benami Transactions (Prohibition) Amendment Act, 2016, shall, notwithstanding anything contained in sub-section (2), be punishable in accordance with the provisions contained in Chapter VII."
Break this down:
- Which transactions? Those entered into on and after the commencement date of the 2016 Amendment Act. Because the amending Act came into force by notification, the date is whatever the notification fixed. The amending Act also says that a reference in any provision to its commencement means the coming into force of that provision.
- What happens? The person is punishable "in accordance with the provisions contained in Chapter VII".
- What of sub-section (2)? The words "notwithstanding anything contained in sub-section (2)" mean sub-section (2) gives way for these transactions.
Chapter VII is headed "Offences and Prosecution" (sections 53 to 55). Its main punishment provision is explained in our article on section 53, the penalty for a benami transaction; read that article for the term and fine, which are not repeated here.
| Transaction entered into | Punishment route |
|---|---|
| Before the commencement of the 2016 Amendment Act | Section 3(2): up to three years, or fine, or both |
| On and after that commencement | Section 3(3): "in accordance with the provisions contained in Chapter VII" |
The text does not say more about transactions entered into before commencement, and this article does not add anything. If your transaction date is near the commencement date, take the notification and read it.
Sub-section (1) is not only about crime
Section 3 sits in Chapter II, "Prohibition of Benami Transactions". Alongside it, the Act deals with consequences on the property itself: a bar on recovering property held benami (section 4), liability of such property to confiscation by the Central Government (section 5), and a bar on re-transfer by the benamidar (section 6). See our articles on section 4 and section 5.
Example
Anil Verma buys a plot in Indore in March after the 2016 changes have come into force, paying the price himself but having the sale deed made out in the name of a distant relative, Pooja Iyer, with no document recording that she holds for him. If the arrangement meets the definition in section 2(9) and no exception applies, Anil and Pooja have each entered into a benami transaction. Section 3(1) prohibits it, and because the date is on or after commencement, section 3(3) points to Chapter VII for the punishment, not to the three-year wording of sub-section (2). Had the same arrangement been made before the commencement, sub-section (2) would be the provision to read.
Other laws and later amendments
Section 3 itself names no other law. Where other sections refer to the Income-tax Act, 1961 or to procedure codes, check the current law for the corresponding provision. Later amendments to the Act are not in the sources consulted; check the current official text, including the commencement notification and the rules.
Need help with a benami question?
If you hold, or are about to take, property in a name other than that of the person who paid for it, we can review the papers and explain how the prohibition could apply. Start with a legal consultation so that the facts, dates and documents are looked at together.
Key takeaways
- Section 3(1) prohibits any person from entering into a benami transaction.
- Section 3(2) allows imprisonment up to three years, or fine, or both.
- Section 3(3) sends transactions on and after commencement of the 2016 Amendment Act to Chapter VII.
- The commencement date comes from a notification that is not in the sources consulted.
- Two sub-sections of section 3 were omitted and are marked "[ *]" in the copy.
Read next
- Section 53: penalty for a benami transaction
- Section 4: no right to recover property held benami
- Section 2: benami transaction, benamidar and beneficial owner defined
- Overview of the Benami Transactions Prohibition Act
Disclaimer: Based on a third-party consolidated text of the Prohibition of Benami Property Transactions Act, 1988 as amended by the Benami Transactions (Prohibition) Amendment Act, 2016, checked against the Gazette of India copy of that amending Act (11 August 2016), as consulted on 2 October 2026. The commencement notification, the rules and later amendments should be checked. This article is general information, not legal advice; check the official text before acting.