Synopsis–The government has issued two notifications dated December 28, 2020, making it mandatory for real estate agents to maintain records of transactions facilitated by them under the PMLA rules. Here is a look at what has been amended, its impact on home buyers and sellers and what will happen if one does not comply with the rules.
If you are looking to buy a house, then your real estate broker will ask you to undergo KYC process and provide information about the source of the funds you will be using to buy the house. This is because the government has amended the Prevention of Money Laundering Act (PMLA) and has brought real estate agents with an annual turnover of Rs 20 lakh or more, under its ambit as a reporting entity.
As a reporting entity, the real estate agent is required to ensure that he/she has verified the background of the homebuyer or seller (whomever the agent is assisting) and has not helped directly or indirectly in any money laundering activity. The government has issued two notifications dated December 28, 2020, making it mandatory for real estate agents to maintain records of transactions facilitated by them under the PMLA rules.
Here is a look at what has been amended, its impact on home buyers and sellers and what will happen if one does not comply with the rules.
Harsh Parikh, Partner, Khaitan & Co. says, “The Government vide a notification dated November 15, 2017, brought Real Estate Agents within the ambit of Prevention of Money Laundering Act, 2002 (“PMLA”) as a person carrying on designated business or profession. Further, vide notification dated December 28, 2020, the Government rescinded the November 15, 2017 notification except in relation to acts done prior to such recession and further clarified that real estate agents as a person engaged in providing services in relation to sale or purchase of real estate and having an annual turnover of Rs 20 lakhs or more would be within the ambit of PMLA.”
“The difference between the earlier notification of November 15, 2017, and this new notification issued on December 28, 2020, is that earlier the RERA Act definition of a ‘real estate agent’ was notified as such for the PMLA as well and therefore any and every real estate agent was under the purview of PMLA as a reporting entity, whereas now only the real estate agents having an annual turnover of Rs 20 lakhs or more would be required to comply with the rules and regulations under PMLA,” says M. Arun Kumar, Partner, IndusLaw.
Apart from this difference, the latest notifications also make it clear what kind of information the agents will have to collect from their clients and maintain under the PMLA. This was not clarified earlier.
Impact on homebuyers and sellers
Kumar says, “While this notification does not directly impact home buyers and sellers, as long as they are dealing in legal sources of funds, the obligations around ensuring compliance with regard to maintaining and furnishing details and records of transactions involving home buyers, sellers, builders etc. will now be required to be taken care of by the real estate agents including maintaining information like PAN /Aadhaar/Passport, information on source of funds, bank statements, income tax records etc of the buyer and maybe of the seller as well.”
Kumar further adds, “Even though earlier real estate agents were under the purview of PMLA as reporting entity, however, it was not clear what kind of the information they were required to ask from their clients and also how to maintain the record of it. The Government with an amendment in PMLA (Maintenance of Records) Rules, 2005 has included the Central Board of Indirect Taxes and Customs (CBIC) under the definition of ‘Regulator’. CBIC, as the regulator is now required to specify the procedure and process of collecting the necessary information by real estate agents from their clients and how such information, if required, is to be reported to the government.”
As per experts, by bringing real estate agents under the ambit of PMLA, the government is involving them in making sure that the sources of funds used by the buyer are legitimate. A real estate agent is required to ensure that the transaction undertaken by the buyer is legitimate and not for money laundering purposes because often black money is used to finance purchase of property.
Parikh adds, “By including real estate agents under PMLA, the onus has been put on the real estate agent to ensure that the clients it represents are not directly or indirectly involved in the process or activity connected with any proceeds of crime. The crux for any real estate agent is to show to the authorities that they did not either directly or indirectly attempt to indulge or knowingly assist in any process or activity connected with proceeds of crime including, concealment, possession, acquisition or use. To ensure the above and if any notices are received by real estate agents under PMLA, they would need to have back up documents and information to show that the real estate agent acted in prudence and made regular inquiries to ascertain the profile and background of the client.”
What if law is not complied with by agent/client
Kumar says, “Any person (real estate agent or buyer or seller) found guilty of money laundering under the PMLA may face punishment involving rigorous imprisonment for 3-7 years or more. Also, any property that is believed to be ‘proceeds of crime’ i.e. where any unknown or illegal sources of funds are used for transactions involving such property, can be attached by the enforcing agencies.”