A national regulator with appropriate powers over the realty sector may be an efficient way of clamping down on realty deals structured to evade taxes, the government said in a white paper on black money tabled in Parliament on Monday.
“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 put in place,” the white paper said.
The system should be computer-driven with minimal interaction between the tax authorities and taxpayers, and enforced by a dedicated unit within the investigative machinery of the income tax department.
The real estate sector contributes about 11% of India’s gross domestic product (GDP). Investment in property is a common means of parking unaccounted money, and real estate transactions are often under-reported or not reported, mainly on account of high property transaction taxes or stamp duty.
“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,” the white paper said.
Current provisions of direct tax legislation provide for mandatory furnishing of the tax identification number by the buyer and seller of an immovable property if its value exceeds Rs 5 lakh.
Also, every registry of property is required to annually furnish information regarding transactions in immovable property if valueed over 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.”