As the government faces heat over corruption and black money, it is planning to bring a law to prevent the misuse of benami transactions, a key source of illicit funds.

The Cabinet on Thursday approved a Bill to replace the Benami Transactions (Prohibition) Act, 1988.

"A benami property shall be liable for confiscation by the adjudicating authority after the person concerned has been given an opportunity of being heard," Information and Broadcasting Minister Ambika Soni told reporters after the meeting.

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In a benami transaction, a property is purchased in the name of a person who is not the real beneficiary but merely represents the real owner.

The Bill excludes from the definition of benami transaction property held by a coparcener (who inherits from ancestors) in a Hindu undivided family and by a person in a fiduciary capacity (a legally appointed person who holds assets in trust on behalf of another).

The Bill treats property acquired by an individual in the name of spouse, brother, sister and any lineal ascendant or descendant as benami, but without prohibiting these. So, these transactions will not attract penal provisions.

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"The Bill has elaborate provisions dealing with the definition of benami transaction and benami property, prohibited benami transactions, consequences of entering into a prohibited benami transaction and the procedure for implementing the benami law," Soni said.

Anyone violating the rule, says the Bill, can be jailed for not less than six months, which may be extended to two years. He will also be liable to pay a fine.

The Bill also has a provision for punishment for those who abet or induce any other person to enter into a benami transaction.