When the Taxman Knocks: Power, Privacy and the Politics of Benami Enforcement

I read the recommendations from the CBDT panel with a mixture of relief and caution. On one hand, these proposals — giving investigators access to Aadhaar-linked records, property registries and vehicle data, plus tougher action against shell companies and dummy directors — promise to pierce many of the veils that have let benami transactions thrive A2Z Taxcorp, CAalley. On the other, I find myself returning to the same two questions: who watches the watchers, and how do we protect the innocent while we pursue the guilty? (Rajeev Khandelwal captured this tension well in his discussion of the compliance inflection point) Rajeev Khandelwal — LinkedIn.

Why I welcome the intent

• The benami construct has long been a loophole that corrodes both markets and trust. When property ownership is opaque, land markets distort, honest buyers and honest builders are disadvantaged, and tax evasion flourishes.
• Access to integrated data — if used correctly — can transform a largely reactive enforcement regime into a proactive one. Linking disparate databases (PAN, Aadhaar-linked property registries, vehicle records, FIU alerts, crypto flows) can reveal patterns that paper-led investigations miss A2Z Taxcorp.
• Targeting shell-company constructs and proxy directors addresses a root cause of many benami arrangements. If directors show no real economic substance, and if unsecured loans dwarf share capital, regulators at least have objective flags to investigate rather than rely on hunches.

Why I am worried — and why those worries matter

Power without guardrails risks two harms that are often conflated but very different:

1. Harm to the innocent

• Many small, genuine actors in India’s informal economy lack PANs or formal income records. A blanket heuristic that marks "people with no PAN or low recorded income" as suspect risks sweeping up farmers, artisans, caretakers and others who may legitimately appear off-grid in formal databases. The CBDT panel itself notes that benamidars may be farmers without PANs — a population we should treat carefully, not criminalise automatically A2Z Taxcorp.

1. Misuse and mission creep

• Giving view/access rights to highly sensitive personal data (Aadhaar, banking linkages, vehicle records) raises immediate privacy and abuse concerns. Without robust access controls, audit trails, and independent oversight, data access intended for benami investigations may leak into other domains or be misapplied.

Principles I believe must guide implementation

Enforcement tools are necessary; respect for rights and the rule of law is indispensable. If we are to tilt the balance toward stronger action, we must couple power with safeguards.

• Proportionality and clarity: Any confiscation power (including seizing alternate assets when a benami property is untraceable) must be accompanied by clear statutory thresholds, an evidentiary standard, and judicial or independent quasi‑judicial review before final dispossession.

• Targeted data access, not wholesale surveillance: Technical designs should limit queries to narrowly defined cases, with “view-only” modes, mandatory logging, and time-bound access. If Aadhaar linkages are used, they must be for a specific investigation and subject to independent audit A2Z Taxcorp.

• Transparency and redress: Affected parties should have a clear, fast route to challenge actions. Fast, well-resourced appellate mechanisms and disclosure of the legal basis for actions will help curb overreach.

• Protect genuine small actors: Criteria used to profile shell companies or dummy directors must be refined so they do not inadvertently flag small, early‑stage, or genuinely inactive companies run by low-income directors.

• Technical and ethical training: Investigators will be wielding sophisticated datasets. Investment in forensic training, ethical standards and penalties for misuse will matter as much as the legal powers themselves.

On confiscation of alternative assets — a pragmatic but delicate tool

Confiscating alternate assets when a benami property cannot be traced is, in theory, an effective backstop. In practice it is dangerous unless:

• Evidence thresholds mirror those for criminal forfeiture; mere suspicion should not suffice.
• A freeze-within-due-process model (temporary freeze, fast-track adjudication, judicial confirmation for permanent confiscation) becomes the default.
• Compensation mechanisms or remedies exist when actions are later overturned.

Will these measures strike the right balance?

At present, the proposals feel weighted toward enforcement — understandably, given the scale of benami activity — but the devil is in the rollout. The law can be written to empower agencies, yet the same law can (and should) embed constraints: clear definitions, accountability structures, judicial review, data-minimisation requirements, and timelines for action. If those safeguards are absent or weak, we risk trading one injustice (hidden wealth) for another (disproportionate state intrusion).

Put more simply: the instruments of justice must be precise. A sledgehammer that flattens fraud but also flattens ordinary lives is still a blunt instrument.

A final reflection

I believe a mature state can both be uncompromising against illicit enrichment and fiercely protective of civil liberties. That dual capacity — strength with restraint — is a mark of institutional confidence. If the CBDT’s recommendations become law, I will look most closely not at the rhetoric of power but at the architecture of safeguards. That will determine whether we close a corrupt loophole or open a new one.

For those who care about markets, governance and fairness, this is one of those quiet inflection points where design choices will echo for a generation. We must get the design right.

---

Regards,
Hemen Parekh