Finance minister Pranab Mukherjee’s proposal requiring home buyers to withhold 1% of the sale consideration as Tax Deducted at Source (TDS) could encourage black money component in real estate, feel developers and property consultants. Tax consultants however, believe otherwise and point out that the reach of the banking sector in rural area makes it easier to detect unsavoury deals.
Terming the proposal as impractical, the Confederation of Real Estate Developers Association of India (Credai) said it will dampen sales in an already sluggish market. “The government can easily find out details of any deal from the stamp duty and registration data, which is available every month,” said Lalit Kumar Jain, Credai president. “This proposal will only make life miserable for a customer, who unlike a businessman, has no knowledge or administrative machinery on how to deduct TDS and file returns.” He adds that this would impact purchase decisions.
Under the proposal, which becomes operational from October 1, 2012, anyone who buys immovable property (other than farm) worth Rs 50 lakh or above in cities and Rs 20 lakh in other areas must withhold tax of 1% of consideration. The buyer must provide proof of having remitted this 1% to the government in order to register the property. Some property dealers say it could also encourage unscrupulous developers to avoid reporting by either drawing up two agreements or reducing the agreement value with a majority being taken in cash. According to Shailesh Puranik, secretary of MCHI, Thane, TDS is suitable when dealings are between businesses as they are familiar with tax laws. “Where the public at large is involved, the responsibility of deducting tax at source should not be imposed on them,” he said.
What is worse, the administrative hassle may end up being completely unnecessary. A large chunk of property transactions involve sellers who are either upgrading or relocating their house. Since the sale proceeds are reinvested, there is no tax implication and the seller would have to go through the hassle of claiming a refund.
According to Pranay Vakil, chairman of Knight Frank, while 1% of the ready reckoner rates or agreement value is not a large amount, it will be an administrative challenge to implement. “The new proposal makes home purchase a tedious process and will confuse a salaried individual as to the numerous taxes he has to shell out. If you buy a under-construction flat, one has to pay service tax. If it is a ready flat, then one pays value-added tax (currently under challenge in the Bombay high court) and now TDS. For a buyer who is not aware of the law, it will become very difficult for him to purchase a flat,’’ said Vakil.
However, according to Homi Mistry, partner, Deloitte Haskins and Sells, the measure is aimed at creating a reporting structure for property transactions. It won’t impact transactions much as besides the administrative hassle it does not introduce any fresh tax liability.
Source – TOI