The Budget proposal for imposition of TDS (tax deducted at source) on transfer of immovable properties aims at cracking down on unaccounted money floating in the real estate sector.
Under the proposed plan, the buyer will have to deposit 1% of the sale value as TDS. It is proposed to insert a new provision to provide that every transferee, at the time of making payments or crediting any sum by way of consideration for transfer of immovable property (other than agricultural land) shall deduct tax at the rate of 1%, according to the budget memorandum.
?The TDS imposed could be a directional way to check the unaccounted money floating in the real estate sector, but the move will be a success only if the government ensures that there are enough ways and means to check the correct disclosures of property transactions made,? said Anshuman Magazine, chairman and managing director, CBRE South Asia.
The change is expected to be implemented from October 1, 2012.
According to officials, the crackdown by the department will not only cover real estate firms, corporates and high net worth individuals (HNIs), but also other realty buyers. In many cases, the sellers don?t voluntarily offer a receipt on the actual value and demand that a portion of the consideration be paid in cash.
The income tax department?s estimate is that in most property deals in metros, 40-60% of the transaction value goes unaccounted. This helps both the buyer and seller evade huge amounts of tax.
Saroj Jha, partner at SRGR Law Firms, said, ?There are still deals in freehold areas where black money is involved. It is very clear that these deals are funded not through bank transactions only, they are also done through cash payments and other considerations in kind.?
According to the finance ministry?s intelligence department, unaccounted money of R2,000 crore was recovered from the real estate sector in 2008-09. In the last two financial years ? 2009-10 and 2010-11 ? the I-T department unearthed unaccounted income from various sectors, including real estate, of over R15,000 crore in its search and seizure operations. Another R8,000 crore was detected during surveillance of firms and individuals who suppressed their income during these two financial years.