Hoping to get builders to put the huge stock of unsold houses on the market, the Income Tax Department (IT) has decided to tax these properties as rental income. The tax will be irrespective of whether the builders have rented out the flats or kept them vacant.
There are approximately 1.70 lakh unsold houses in the Mumbai Metropolitan Region (MMR), which includes 60,000 in Mumbai.
While builders have criticised the move saying this would only add to project costs, both analysts and housing activists have described the step as inevitable considering the hoarding by builders.
The IT department will charge 15% to 20% of the market rate of rents in that area, which will be called ‘Income from House Property Tax’.
Currently, builders show unsold properties as ‘stock in trade’, which exempts them from paying any tax. This proposal is currently awaiting the nod of the Union finance ministry.
The accusation against builders is that they are creating an artificial scarcity, keeping prices high. “There is such a huge unsold stock kept by builders for speculative increase of prices. We want to disincentivise them and are just seeking our part of the revenue,” said an IT official, who refused to come on record.
Builders said it was an unfortunate development, especially when the realty sector was going through such a tough phase. “It is wrong to presume that we hoard properties. We all want to sell the flats at the earliest and exit from the project. We are forced to charge exorbitant prices considering multiple taxes and premiums levied by government agencies,” said Shadaab Patel, chairman and managing director, Platinum Constructions Private Limited.
He said the tax will only increase overheads, which will ultimately be passed on to consumers.
Pankaj Kapoor, CEO, Liases Foras, a real estate research firm, said it was a paradox that the city which faces such an acute housing shortage is saddled with such a huge inventory.
“Such steps are needed to force builders to offload their inventory and bring prices at par with the buyers’ budgets,” Kapoor said.
Housing activist Utsal Karani, secretary, Janhit Manch blamed builders for the impasse saying heavy taxes was the only way to reduce prices.
“These builders bought land at exorbitant prices and hence are not ready to sell at lower prices. Heavy taxation is needed to force builders to sell their stock,” Karani said.