KYC and Source of Funds required from buyer/seller for any real estate transaction, by Real Estate Agent

The government has issued two notifications dated December 28, 2020, making it obligatory for real estate agents to keep records of transactions facilitated using them under the PMLA (Prevention of Money Laundering Act, 2002 ) rules. Here is a have a look at what has been amended, its impact on home buyers and sellers, and what will manifest if one does now not observe the guidelines.

If you're looking to buy a residence, then your real estate agent will ask you to undergo a KYC process and statistics about the supply/source of the finances you will be used to buy for the house. Under the added/amended provision of the said Act/rules, any real estate agent having annual turnover of more than Rs 20 Lacs is under the ambit of the Act.

The amendment

The government vides a notification dated November 15, 2017, added real estate agents in the ambit of Prevention of Money Laundering Act, 2002 ("PMLA") as someone sporting on unique business organization or career. similarly, vide notification dated December 28, 2020, the authorities rescinded the November 15, 2017 notification besides with regards to acts finished previous to such recession and further clarified that real estate agent as a person engaged in imparting offerings as regards to the sale or buy of actual real estate and having an annual turnover of Rs 20 lakhs or more could be inside the ambit of PMLA.

The contrast between the prior notice of November 15, 2017, and this new warning gave on December 28, 2020, is that previous the RERA Demonstration meaning of a 'real estate agent ' was told as such for the PMLA too and along these lines any and each real estate agent was under the domain of PMLA as a detailing element, though now just the realtors/agents having a yearly turnover of Rs 20 lakhs or more would be needed to follow the principles and guidelines under PMLA.

Aside from this distinction, the cutting-edge notifications additionally make it clear what form of facts the agents will have to collect from their clients and maintain below the PMLA. This became now not clarified in advance.

Affect on homebuyers and Sealers "while this notification does no longer at once impact home customers and sellers, as long as they may be dealing in legal sources of funds, the duties round making sure compliance concerning retaining and furnishing information and records of transactions involving domestic shoppers, dealers, builders and so forth. Will now be required to be taken care of using the actual estate marketers inclusive of keeping information like PAN /Aadhaar/ Passport, facts on the supply of price range, financial institution statements, income tax records, etc of the buyer and perhaps of the seller as well."

Even though earlier real estate agents had been beneath the purview of PMLA as reporting entity, but, it was not clear what type of data they were required to invite from their clients and additionally the way to keep the document of it. The authorities with a change in PMLA (maintenance of data) policies, 2005 has protected the Central Board of indirect Taxes and Customs (CBIC) below the definition of 'Regulator'. CBIC, because the regulator is now required to specify the system and technique of amassing the vital statistics via real property dealers from their clients and the way such statistics if required, is to be reported to the government."

According to professionals, by bringing real estate agents below the ambit of PMLA, the authorities are concerning them in making sure that the resources of price range utilized by the consumer are valid. A real estate agent is required to make certain that the transaction undertaken with the aid of the buyer is legitimate and now not for money laundering functions due to the fact regularly black money is used to finance the buy of assets. Using along with real estate agents under PMLA, the onus has been put on the real estate agent to make certain that the clients, it represents are not at once or circuitously involved inside the manner or hobby related with any proceeds of crime. The crux for any actual estate agent is to expose to the authorities that they did not either directly or not directly try to indulge or knowingly assist in any manner or hobby connected with proceeds of crime such as concealment, ownership, acquisition, or use. To make sure the above and if any notices are acquired through real estate retailers underneath PMLA, they might need to have back up documents and information to reveal that the real estate agent acted in prudence and made regular inquiries to check the profile and background of the client."

What if regulation isn't complied with through Agent / Client ?

Any person (real estate agent or buyer or seller) found responsible for cash laundering below the PMLA can also face punishment regarding rigorous imprisonment for 3-7 years or greater. Additionally, any assets this is believed to be 'proceeds of crime' i.e. in which any unknown or illegal resources of price range are used for transactions involving such property, may be attached with the aid of the implementing businesses."

“With the said amendment, a real estate agent need to be more vigilant while executing any real estate transaction and should statutorily/mandatorily keep the KYC records alongwith the brief profile of the customers with source of funds so paid for the said property. These records can be sought by the regulatory authorities at any point of time. Even each developer/landowner/seller should also keep these records as they are also within the definition of the designated person as per PMLA and rules made thereunder. Now, agents are more responsible on regulatory front. However, the real challenge is to get the proof of funds from the stakeholders as they generally provide KYC documents only. Moreover, all stakeholders should sought legal advice from their respective legal counsel on modus operandi of the documentation part.” said Mr Mahesh Somani : President of RECA Kolkata & Chairman of National RERA Committe, NAR India.