Tax evasion and real estate sector have always gone hand-in-hand in India.
Historically, immovable property is an area where unaccounted money has been involved in large measure.
Unaccounted money in property deals will not be a surprise for those who have some experience of the dealings of players in the real estate sector.
On his part, the taxman has been coming up with various measures from time to time to curb the menace of unaccounted money in the real estate sector.
The Government has made several attempts in the past to make the parties declare the correct value of the transaction and pay tax.
Examples of such measures are introduction in the income tax law of Chapter XX-A, Chapter XX-C (power of Government to acquire property at agreement value), taxation at stamp duty value. All these have yielded mixed results. In this backdrop, Budget 2012-13 has come up with yet another innovative step to tackle the menace of unaccounted money in property deals.
It has expanded the coverage of withholding tax obligations to transfer of immovable property by residents. So far, tax was required to be deducted at source by the transferee when an immovable property is transferred by a non-resident.
Now, with a view to collect tax at the earliest point of time and also have a reporting mechanism of transactions in the real estate sector, Budget 2012-13 has brought transfer of immovable property other than agricultural land within the TDS ambit.
Transferee of immovable property is now required to withhold tax of 1 per cent of consideration.
Such withholding is required only if consideration exceeds Rs 50 lakh in case property is located in specified urban area and Rs 20 lakh in case property is located in any other area. There is no exemption from this to individuals.
The registration of the transfer is subject to submission of proof of payment of TDS. This amendment will be applicable with effect from October 1 this year.
EXPERTS' VIEWS
“The latest Budget proposal on TDS for real estate sector is welcome. It will sensitise the requirement of compliance among people,” Mr G. Ramaswamy, former President of CA Institute, said.
He pointed out that the CA Institute had many years ago recommended to the Government to bring real estate transactions under the TDS net.
In fact, the Tax Department had adopted the concept of handing out tax clearance certificates before an immovable property above a particular value was transferred. But now that practice is not in vogue, Mr Ramaswamy said.
Mr Prashant Khatore, Tax Partner, Ernst & Young, said that this Budget proposal is another significant step in the direction of curbing unaccounted money in real estate deals. “Though it may be little onerous for the parties to withhold tax and deposit, however, it will make them conscious to declare the real transaction price”.
Apart from procedural difficulties in implementation, this would bring transparency of information of real world dealings and further the cause of curbing evasive practices, according to Mr Aseem Chawla, Tax Partner, Amarchand & Mangaldas.
Few years ago, the Budget had another innovative step to curb black money in the real estate sector. The Finance Minister had in July 2009 sought to make tax planning around gifting of immovable properties a difficult task for taxpayers.
Simply put, immovable property passed as gifts (from non-relatives) could be brought under tax net at the hands of the recipient.
To curb black money transactions in the property market, the income-tax law was amended to specify that the value of any property received without consideration or received with an inadequate consideration will be included in the computation of total income of the recipient.
Many politicians use the gifting route to get away from the taxman's net. Their contention is that properties and jewellery had been given to them out of love and affection by party workers and loyalists.
While many real estate deals may have escaped the lens of the taxman in the past, the same may not hold true in the coming days. The Tax Department and the policymakers are well aware of the revenue potential of the real estate sector.
TAXMAN AND BULLION
The taxman is only too keen to curb the flow of unaccounted money in the economy. Another instance of this thinking is a proposal in the latest Budget to introduce the concept of tax collection at source on cash sale of bullion and jewellery.
As per the Budget proposal, every seller of bullion and jewellery would have to collect tax at the rate of one per cent of sale consideration from every buyer of bullion and jewellery if the sale consideration exceeds Rs 2 lakh and the sale is done in cash.
This would be irrespective of the fact whether the buyer is a manufacturer, trader or purchase is for personal use.