By Accommodation Times Bureau
The buyer has the option of investing his black money by paying cash in addition to the documented sale consideration. This also leads to generation of black money in the hands of the recipient, the White Paper on black money prepared by the Finance Ministry said
New Delhi: The “White Paper on Black Money” presents the different facets of black money and its complex relationship with policy and administrative regime in the country. It also reflects upon the policy options and strategies that the Government has been pursuing in the context of recent initiatives, or need to take up in the near future, to address the issue of black money and corruption in public life.
Due to rising prices of real estate, the tax incidence applicable on real estate transactions in the form of stamp duty and capital gains tax can create incentives for tax evasion through under-reporting of transaction price. This can lead to both generation and investment of black money. The buyer has the option of investing his black money by paying cash in addition to the documented sale consideration. This also leads to generation of black money in the hands of the recipient, the White Paper on black money prepared by the Finance Ministry said.
Further said, a more sophisticated form occasionally resorted to consists of cash for the purchase of transferable development rights (TDR).
The property market remains one of the most inefficient asset markets in India:
The real estate sector in India constitutes about 11 per cent of the GDP. Investment in property is a common means of parking unaccounted money and a large number of transactions in real estate are not reported or are under-reported. This is mainly on account of very high levels of property transaction taxes, commonly in the form of stamp duty. High transaction taxes in property are one of the biggest impediments to the development of an efficient property market. With tax rates of over 5 per cent being imposed as stamp duty on buying of property, which otherwise also involves high transactions costs in terms of search, advertising, commissions, registration, and contingent costs related to title disputes and litigation, the property market remains one of the most inefficient asset markets in India. Unless the underlying distortions in this market are taken care of by appropriate reforms, it may be difficult to prevent such misuse.
Even after 73rd and 74th amendments local rural and urban bodies as the third tier of govt:
As per the division of powers between the states and the centre, the real estate sector has largely been left to the state governments to regulate and tax. Even after the 73rd and 74th amendments to the constitution of India which recognized local rural and urban bodies as the third tier of government, the power to legislate with respect to real estate properties and transactions therein remains with the states. Different state governments have undertaken reforms in this sector at differing pace, while their implementation is further subject to the capacity and commitment of the respective local urban bodies.
JNNURM implemented in 2005-06 to support Urban Infrastructure as well as to restrict stamp duty at 5%:
The role of the central government in reforms of the real estate sector is generally limited and advisory in nature. However, this has not prevented the Government of India from initiating steps to incentivize reforms. Its flagship programme, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), being implemented since 2005-06 aims to support urban infrastructural development by providing both monetary and non-monetary support, for reforms in different sectors of the local economy.
It includes reforms of the stamp duty regime to restrict it to no more than 5 per cent. Some states have carried out this reform, but others are still persisting with very high stamp duty regimes. For states that are resource constrained there is a case for identifying and implementing adequate revenue-neutral substitutes to facilitate the rationalisation of stamp duties.
Repeal of ULCRA reforms of the Rent Control Act will balance the interests of tenants and owners:
There are many other pending reforms required for the emergence of an efficient competitive real estate market. These include repeal of the Urban Land Ceiling Regulation Act (ULCRA), reforms of the Rent Control Act that will balance the interests of tenants and owners and free properties of its distortions, revision of bye-laws to streamline the approval process for construction of buildings, development of sites, simplification of legal and procedural frameworks for conversion of land from agricultural to non-agricultural purposes, introduction of the Property Title Certification System in Urban Local Bodies, introduction of computerised process of registration of land and property, introduction of e-governance in local administration
and tax payments, creation of computerised fiscal cadastres and rationalisation of property tax designs.
Each of these areas had been given a thrust by making it conditional to the release of financing for urban projects by the central government. Evidence suggests that the mission has achieved considerable success.
However, a lot more needs to be done in this regard. There may also be a case for integration of local urban authorities in a nationwide digital database and sharing of data and information with state and central agencies.
Direct Tax legislation mandatory furnishing of the Tax identification number by buyer and seller if immovable property if the value exceeds Rs 5Lakh:
The current provisions of the direct tax legislation provide for mandatory furnishing of the tax identification number by the buyer and seller of an immovable property if the value exceeds Rs 5 lakh. Also, every registry of property is required to furnish annually information regarding transactions in immovable property if the value exceeds Rs 30 lakh. However, as many registrar offices still operate on a manual system, there are a number of gaps and lapses in the reporting of such transactions.
To deter element of black money in immovable property deals focus on actionable intelligence by monitoring agencies and simple reporting system:
To reduce the element of black money in transactions relating to immovable property and facilitate focused action based on actionable intelligence by monitoring agencies, simple reporting systems can be evolved that will facilitate the development of a nationwide database. Such a database should be computerdriven with minimal interface between the authorities and the people, and accessible to all financial regulatory authorities.
One of the measures for deterring use of the real estate sector for generation and investment of black money could be the provision of deducting tax at source on payments made on real estate transactions and mandating it as a pre-condition for registering of the transacted property. The provisions of tax collected at source on the developers of the property can also be considered as a possible policy measure. Electronic payment and electronic reporting can mitigate the compliance burden.
Further, to reduce the element of black money in transactions relating to immovable property, the provision of no objection certificate (NOC) may be introduced in the income tax law with safeguards to reduce administrative complications and increased ease of compliance, so that an appropriate and uniform database is set up and a proper national-level regulation also put in place. The new system should be computer-driven with minimal interface between the tax authorities and taxpayers, and enforced by a dedicated unit within the investigative machinery of the income tax department on the basis of pre-determined parameters and standard operating procedures.