The question nowadays is – whether demonetization will succeed in curbing usage of black money in real estate transactions?

In my personal opinion, it will not succeed at all provided some other actions are also taken which are suggested in this article.

Even after demonetization, buyer of real estate will be tempted to withdraw money from bank account and to pay nearly 50% purchase price in unaccounted way. Buyer will be tempted to do such a malpractice because, it can save stamp duty and registration fees in this way. On the other hand, seller will also not take any objection to this modus operandi because it will save income tax and VAT/GST by this practice.

So what can be done in this situation to curb usage of black money in real estate transactions?

Answer is – State governments which are empowered to levy stamp duty, should (1) lower the stamp duty rate to nearly half of the present rate and (2) increase the Jantri value (stamp duty value) to nearly double the present value.  In this way, state’s revenue from stamp duty will remain at same level and buyer will also pay same amount of stamp duty. At the same time, this initiative will assure curbing the usage of black money as the transaction with double jantri value will assure usage of white money to double extent.

Video in Hindi language of this article is also prepared. Following is the link of same.

CA. Tejas K. Andharia

B. COM, F.C.A., D.I.S.A.(ICAI), D.I.R.M.(ICAI)
Bhavnagar, Gujarat
Email: tejasinvites@gmail.com

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18 responses to “How to curb use of black money in real estate transactions?”

  1. nithesh rohatgi says:

    reduce income tax rates and capital gain tax to minimum.

  2. Sreenivasan Mahadevan says:

    Link all transfer of properties with Aadhar Card both seller and buyer and related banking transaction done through bank affixed immediately and attached as evidence. Finance Ministry must state any deviation found in future on this will end up jail sentence for both buyer and seller All properties must be linked to Aadhar Card in the case of individual or trusts in the case of NGOs showing directors and CID/SID in the case of commercial organizations

  3. subodh agrawal says:

    Before we try to curb black money we must what is black money,there is no definition OF BLACK MONEY,FOR convenience sake we can assume that money which no tax is paid is black money. in real estate there is 4 component 1>land value 2>permission cost 3>construction cost 4.> selling cost. in every stage we have to deal with the various authority who needs there cut and fees to give permission, all the tax is depended on the cheque payment and to reduce incidence of tax the cash component is introduced, unless this part is taken care of all this write up will lead us nowhere

  4. Sharad Ruia says:

    I agree with what Rajagopal has said more importantly the Government will have to tackle the issue by multiple action. 1. rationalising the income tax. 2. ensure transparent online plans approval system for real estate – empower the architects to approve the building plans and they shall be responsible to clear what is within the guidelines, this will reduce or stop the interface with municipal/approving agency officials and their discretion will go for which there is huge corruption. 3. withdrawal of funds larger than 50,000 from any ones account needs to be explained as if most of the things would be cashless payment than what is the justification of cash withdrawal. this is possible to implement now when cash has already being sucked out of the system. 4. more fast track courts to deal with property disputes with time limit for decision being 6/12 months – by doing this the incentive to land mafia for capturing and creating dispute in land will go and black money cash will not be required to pay. 5. political corruption needs to be stopped.

  5. Adv. Govind Patwardhan says:

    The author has given too simplistic solution to very very complex issue. Gold is taxed at 1% or thereabout. even then 95% of it is sold without bill.
    Make enjoyment of black money impossible is one way to curb tendency to take bribes. Cash less is one solution but not ultimate.

  6. B.V.Subrahmanyam says:

    Simple and practical solution:
    1.Guidance values should be fixed for all properties, if not yet done.
    2.. All sale/purchase are to be done at the specified guidance values- no more no less
    3. keep stamp duty and registration charges at reasonable levels(not more than 2%)
    4. No cash transactions.
    5. Only people who try to own more than one property, and people investing in real estate(not for self occupation, but trading) would be generating black money. Let the Tax authorities go after such individuals mercilessly. These steps are enough to eradicate black money in real estate
    6 At present stamp duty and registration charges are only about 3%. If one undervalues the property now, when he tries to sell it at higher rate tomorrow, he has to pay capital gains. That it self is a deterrent for generation of black money.
    It is right- top to bottom are corrupt- But one should not give up hope. Let us try first, and punish the guilty mercilessly

  7. PALANI P says:

    1. State Governments have adequate revenue officials. They must ensure that the difference between market value and stamp duty value is not more than 10% to 15%. Plus or minus 10%-15% between market value and stamp duty value is OK.
    2. Stamp Duty and Registration fees must be 2 or 3% only. Initially states may lose money but once settled, they will get more revenue since volume will increase subswquently

  8. N.Satpati says:

    The suggestion is not worthy particularly in view of the changes made in the Income tax act by introduction of Section 43CA and substitution of section 56(2)(vii)(b) by the Finance Act,2013.Therefore, if the suggestion given by the author is accepted by the government and accordingly steps are taken, the common people, who are buyers of small/moderate value flats would be crushed by the stamp duty as well as by the income tax on the difference between the stamp duty value and deed value since many state governments, particularly West Bengal government, have already fixed the stamp duty value of immovable property at a level much above the prevailing market value to augment revenue collection on a/c of stamp duty, a major source of revenue of the state government. Therefore, the state governments may increase the stamp duty and leave the market to decide the value of the immovable property to give relief to ordinary people from double taxation. The central government may make rules that no payment for purchase of immovable property can be made by any mode other that account payee cheque or draft. The investigation / vigilance mechanism may be made much stronger and transparent to check introduction of unaccounted money in the real estate transactions and business. Otherwise, an effort to punish the black money holder will be a bane for the common ordinary people.

  9. S.C.Bansal says:

    The real problem is payment of the entire sum of purchase in white. Because of high income tax rates,people are tempted to accumulate money in black and as such are incapable of paying in white because of paucity of white money. Stamp duty is not such a problem as white money is.

  10. RAMANA says:

    Sir, first of all, there should not be any sale or purchase of immovable property between Individuals. It should be directly with government only. If any body wants to sell their property, they should approach to the local authority (Muncipal Corporation)/government Registrar office (along with original Sale deed copy) where they can directly sell it to the government. The Muncipal authority will verify with their Land records and physical verification of the property, they will issue DD/CHEQUE to the party after deducting relevant Taxes on the saleable property if any due to the government (Property Tax/Long term capital gains tax) if any, and incorporating in their records of Vacant Land/House.
    Similarly if any body wants to purchase the land, they should verify with the Muncipal Corporation Web site/Office Records, for the lands/Houses available for sale with the Government and they pay Actual Stamp duty/Service Tax/Sales Tax. Then there is no mediator intervention. No Tax evading. Both sides, the government will get actual Taxes leviable. All this should happen only when the State/Central Government will make proper exercising on this issue. No cash transactions, amount will be transferred through Electronic mode only with 100 % transparency.

  11. Anup Tabe says:

    Nice

  12. HL CHHATWAL says:

    These days builders are offering to develop your property. They bear the cost of construction and take one floor and in addition they give consideration money as per development agreement depending upon no. Of floors you give them. What will be tax treatment of consideration money. Will there be some other consequences due to sale dead executed in favour of builder or his rep.

  13. K.Prakash Babu says:

    The one and only solution is to decrease the stamp duty drastically so that all buyers would prefer to get it valued properly and correctly. Alternatively, as rumours floating wildly, when the payment to seller undergoes Bank Transaction Tax, that it self is sufficient undertake registration at a very nominal fee of Rs.1000/- to .0025% of sale value.

  14. Bilal Chauhan says:

    Agree with Mr. Rajagopal. Increasing the SDRR (Stamp Duty Value) will create a negative situation for genuine cases also. Some argue that the stamp duty value is far less as compared to the actual market prices. But this is due to the fact that the mechanism for fixing the rate is faulty. The rates are fixed for a particular area as a whole irrespective of the quality of construction, the amenities offered etc which creates huge differences between the SDRR and the actual market prices in cases where premium construction materials are used providing luxurious amenities.

  15. Gopal says:

    Tejas Good Article, But there are huge limitation in withdrawal of cash from Bank, The Maximum Amount of withdrawal is 50 k for Current Account, Hence i feel that the accumulation of black money is not as easy as it was earlier.

  16. RAJAGOPAL says:

    It will create a situation of guidelines value more than the market value, which will affect the genuine cases. Lowering stamp duty- even if make it just 1%, people will evade because the problem is not the stamp duty but the parking of black money. Vigilance is the best answer but it won’t work in India as many are corrupt from top to bottom

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