Under pressure to unearth black money, the Income Tax department has decided to review all recent property deals to check for use of cash. The plan is to start the scrutiny from Delhi and the National Capital Region, comprising Gurgaon and Noida, and subsequently turn it into an all-India exercise.
“I-T department will review the property deals in Delhi and take action in appropriate cases,” Central Board of Direct Taxes chairman Sudhir Chandra told reporters here, adding that these reviews will include both individual and corporates property deals in Delhi and the National Capital Region (NCR – Noida, Gurgaon).
Officials in the tax department, who announced the move on Monday, did not elaborate on the period for which the review would be undertaken. However, indications are that transactions starting in 2010-11 would come under the scanner.
Aim of the move is to unearth black money in property deals which largely going undetected due to differences in market price and registry rates set by state governments.
The move is based on past searches and surveys conducted by the department that saw maximum undisclosed income by real estate companies. In the last three years, the income tax department conducted several search operations across the country in real estate companies, including the Lodha group, BPTP, Kanakia Group, Paras and Amrapali group, among others on charges of alleged tax evasion or misreporting of income. In fact, according to reports prepared by the intelligence department of the finance ministry, the quantum of unaccounted money is highest in the real estate sector, around Rs 2,000 crore as per a 2009 report. The department’s move is also likely to bring the DDA Housing Scheme 2010 under its scanner. All deals under the scheme would be scrutinised by the I-T department.
The use of cash in secondary market transactions is very high though tax officials have also come across several instances even in the sale of property by builders. It has become commonplace for buyers to under-report the transaction to save on registration cost. For sellers, especially those who do not intend to use the money to buy new property, it means a capital tax burden, which they want to evade.
In fact, the real estate sector has been identified as a key generator of black money in the economy. This is despite the fact that registrars across the country have to report all real estate transactions of Rs 30 lakh or more. The tax department then uses the software available with it to match the data with the tax returns using the permanent account number (PAN) furnished by taxpayers while registering property. It is unclear if the department plans to match all returns filed by registrars with the PAN numbers available with it.
At present, the department has data for 2009-10 available with it, while information for 2010-11 will only be available starting August this year.
Officials admitted that the challenge would be to review transactions of less than Rs 30 lakh. The government is likely to depend on developers to track these transactions.