Introduction
In this Article, we will understand the what are the major rules and regulation that’s keep in mind before making any real estate transaction. And Provisions in Income tax and other acts against regulation of black money in real estate
The first definition or picture that comes to mind when we hear the term “real estate” is property. But, there is much more to “real estate” than just land if we take the word in its literal sense. Land and anything permanently affixed to it, whether natural or man-made, are included in the category of real estate. To put it simply, real estate refers to any land or improvements that are related to it. A villa, an apartment, and a multi-family house are all types of real estate. One of the major industries in India that contributes significantly to the GDP of the country is the real estate industry.
Definition of Black Money
Although there isn’t a standard definition for “black money,” it’s widely understood to refer to any funds obtained through illegal ways. These are the funds that are not able to be reported on taxes.
The real estate industry provides a significant producing ground for black money and its affiliates. This is due to the fact that real estate values are frequently unclear which draws in a lot of other activities associated with the creation of black money. In the real estate industry, a number of activities – such as incorrect property evaluation, brokerage costs, or agent fees that go unmentioned – combine to form black money.
Example of Black Money:-
suppose a store does not provide receipts to its consumers and only takes cash for its goods. Due to its refusal to pay taxes on sales that are not tracked, that store is operating on illegal funds.
Tax Burden on real estates:-
To understand the tax burden on real estate transaction we must need to understand some of the following term:-
What is Long term and Short term Capital Assets?
Ans:- Any type of property owned by a taxpayer is considered a capital asset under Section 2(14) of the Income Tax Act, 1961.
Short term Capital Assets:- A short-term capital asset is one that is held by the assessee for less than 36 months previously to the transfer.
The short-term real estate transactions need to be subject to the same slab rates of tax as various kinds of income.
Long term capital Assets:- A long-term capital asset is one that the assessee has held for longer than 36 months before to the transfer.
The tax on long-term real estate transactions will be 20%, which will be a specific flat rate.
What is Cost of Acquisition?
Ans:- This is the price the asset holder has to pay when purchasing the item. These costs are capital in nature
Section of Income Tax applicable on Real Estate Sector
What are the Real estate transaction taxes are governed by the following sections of the Income Tax Act?
Ans:- The following sections of the Income Tax Act:
1) Section 50C:- This section states that the stamp duty value (SDV) of an immovable property sold must be considered when taking account for calculating capital gains if the sale consideration of the property is less than the SDV.
2) Section 43CA: This section was added by the Finance Act of 2013 because the previously mentioned section does not apply to immovable property held as stock in trade. It specifies that in the event that the assessee sells such property for less than SDV, the SDV will be taken into account as sale consideration.
3) Section 56(2)(vii): This section focuses on purchasers of capital assets, while the previous two parts pertain to sellers. According to this section, if someone receives real estate for less than SDV but more than ₹50,000, the difference will be subject to income from other sources taxation.
What are the challenges in the legal system?
Ans:- The real estate industry faces a number of challenges and problems. Fraudulent deals and misrepresentations in the real estate sector are accepted. A common scenario is when a buyer is given assurances regarding particular characteristics of a property, such as possession, furniture, etc., and then, when a transaction is finalized, the buyer faces difficulties, such as a third party claiming ownership of the property.
Following are the legal restrictions in real estate sector:
1. Breach of Contract
2. Incompetent agents
3. Not disclosing accurate information
How Black Money arise in real estate sector?
Ans:- Black money is generated in the real estate markets primarily for two reasons:
(a) There is a good return on investment in properties;
(b) There is a small chance of being detected evasion taxes and a relatively low penalty rate if convicted.
(c) The creation of black money is tax evasion, which is made much easier in the real estate market by the properties’ unpredictable values. Finding a property’s true and fair worth involves a ton of steps and difficulties. Because the value of the property is unpredictable, it is also impossible to calculate the brokerage or cost imposed by the agent.
What are the Corrective measures that the government will implement in real estate sector?
Ans:- To lessen the risk created by black money, governments can implement a few corrective steps to decrease underreporting of transaction value, tax, and stamp-duty evasion.
- automating the documentation process to reduce corruption
- To prevent tax evasion, simplification of registration fees, stamp duty, and other property transfer levies is necessary.
- The creation of an internet database of all real estate transactions to facilitate the tracking of questionable deals.
What is the other Existing administrative to tackle black money in real estates?
Ans:- the other Existing administrative to tackle black money in real estates are:
Benami Transaction (Prohibition) ACT:-
One of the main industries in India for the creation and investment of unreported income, or “black money,” is real estate. In order to prevent black money transactions and guarantee that all real estate transactions are carried out in the name of the true owner and that the consideration is derived from his known resources, the Prohibition of Benami Property Transactions Act, 1988 was adopted.
The Benami Transactions (Prohibition) Act, 1988 established the first law regarding Benami transactions. There were just eight sections in this Act. The Benami Transactions (Prohibition) Amendment Act, 2016, which included 72 Sections, later modified the same.
What is Benami Transaction or Benami property?
Ans:- Benami transaction:- is a transaction or arrangement in which property is given to or held by an individual and the consideration for it has been given, paid, or provided by another individual. The property is held for the direct or indirect benefit of the individual who provided the consideration, either now or in the future.
1. Benamidar:- the other individual, with or without permission, whose name a property is shown.
2. Benami property:- any asset that is the focus of a benami transaction. It may be movable or immovable in any form. Property in its changed form, tangible property, and revenues from the property. This means that benami investments in shares, other financial instruments, jewelry, and other items are covered in addition to plots of land, homes, and other real estate.
What are the exception to the scope of Benami Transactions?
Ans:- A member of the HUF holds property for the benefit of the HUF, and the consideration is funded by the HUF’s established revenue streams a person who manages the assets on behalf of another person in a fiduciary position; examples include directors of companies, traders’ depository participants, trustees of trusts, and holders of shares in demat form.
A person who jointly owns property with their brother, sister, or lineal descendant, provided that the consideration comes from the sources that the other person is known to have.
What are the punishment for doing Benami transaction?
Ans:- If a person is found guilty of the offence of the Benami transaction by the competent court, he shall be punishable with rigorous imprisonment for a term not less than one year but which may extend to 7 years. He shall also be liable to a fine which may extend to 25% of the fair market value of the property
Prevention of money Laundering Act:-
Money laundering through real estate is one of the most widely utilized methods among the several that are utilized. The high value of real estate transactions is frequently used by criminals as a justification for their illicit gains.
How people do money laundry through Real Estate?
Ans:- Money laundry through Real Estate are:
- Use of third parties
- Utilizing credit and mortgage
- Manipulation of property values
- Structuring Cash Deposits
- Rental Income as legitimization
How to detect money laundering through real estate?
Ans:- a) Assets Declaration:- Put in place a strict system requiring public officials to declare their assets both before and after their period of service, especially senior officials and their close connections. These disclosures ought to be made available to the general public so that independent authorities can confirm their accuracy. Any unusual or questionable wealth can be found by attentively studying these disclosures; this could lead to the discovery of evidence of money laundering.
b) Land Registers:- setting up of an online, centralized land registry system can improve the identification of real estate money laundering. Records of property ownership would be transparent and available to the public under this system. It is made simpler to follow the source of cash and spot any questionable activities or ownership patterns by having an extensive database that provides information on property ownership. Increased transparency in land registrations deters criminals from laundering money through real estate.
What are the action that can be Initiated Against the person Involved in money Laundering?
Ans:- The action that can be Initiated Against the person Involved in money Laundering are:
- Property and records can be seized, frozen, and attached, even property acquired via illegal
- Any individual found guilty of money laundering faces a minimum sentence of three years in jail and a maximum sentence of seven years in prison.
- Fine (no boundaries).
Conclusion:
In summary, the Indian government has implemented various measures to reduce the unauthorized flow of black money into the real estate sector, with the goal of decreasing the overall amount of black money in the country’s economy.
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We are open for comments and suggestions. The above article has been prepared as by Mr. Sachin Vishwakarma (sachin.vishwakarma@abacussolutions.co.in) and reviewed by Mr. Suyash Tripathi (suyash.tripathi@abacussolutions.co.in)
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