Plea to the FM to withdraw Super Rich Surcharge on Long Term Capital Gains on sale of Immovable Property 

It is an accepted fact that the Economy is passing through acute recession. Every day we hear of lay off of employees in real estate, IT, automobile, manufacturing & practically in all sectors. The factories across India are temporarily being shut down to bring down production as there are limited sales, large inventories, working capital crunch & low realizations. The newspapers are full of advertisements of Bank Auctions of immovable properties to recover their overdue loans- Term Loans, Project Loans, Working Capital Loans, Loans against Properties, Top up Loans etc. The Real Estate sector is in shambles. The exports have dwindled. Production & GDP have fallen miserably. Sales in all sectors have plummeted and customers have suddenly vanished from the market. The only exception to this is the NBFC’s and Jewellery pawning companies which are flocked by personal loan seekers to meet their rising liabilities.

The private finance markets throughout the country were actively involved in providing private finance to business entities. Unimaginable amounts were available to the desirous businesses at 1.5 -2 times the bank rates for a fixed/ renewable period. But demonetization in November 2016 has broken the backbone of this secondary market nicknamed as ‘Hundi’ market. Due to poor sales, poor liquidity & poor demand of goods, majority of business entities which had taken “Hundi’loans, have defaulted. No region or state has been spared from this Default. Consequently those who had lent their money privately on higher interest to business entities have lost not only their interest income but the principal amount also leading to a financial chaos within the country.

In this dismal financial situation the only resort/ option with these business entities is to sell their immovable properties i.e house, apartment, commercial establishment, factory or open land to pay the overdue loans to the banks, friends/relatives, NBFC’s & the secondary/Hundi market to save their sinking reputation and to avoid civil & criminal litigation. This is the only alternative/ recourse available to the cash stripped businesses to save their business reputation. It will not be out of place to mention that the corporate giants are selling their properties, ventures & stakes to become ‘debt free’. Thus, almost all the people who sell their immovable properties do it not with a motive of en-cashing gains but to clear their dues and lead a respectable & scot free life thereafter. Their motive is not to swell their bank balances but to become ‘Debt Free’ as they are unable to service the rising interest costs. Since the sale proceeds are utilized in clearing their debts they do not have enough money to invest in purchase of residential properties or Bonds etc. u/s 54, 54E, 54 EA-EE & 54F of the Income Tax Act to avoid Long Term capital Gains Tax.

In this scenario the prime deterrent is the ‘Super Rich Tax’ which has been imposed by the FM in the current budget which covers both the regular income & the long term capital gains. The FM has increased surcharge, where the total income exceeds 2 crores to 25% and where the total income exceeds Rupees 5 crores to 37%. A further 4% cess is payable over and above the income tax and surcharge payable thereupon. The capital market reacted badly on these proposals. The incentive to earn more or to sell immovable properties to clear the debts was adversely affected. The net higher rates of Income Tax were unprecedented and uncalled for especially in the present scenario.

The FM soon realized that the foreign investors are being dissuaded & swept away by the incidence of this super rich tax. As a corrective measure, the FM exempted foreign investors (FPI) from the super rich tax on the 23rd August 2019 by withdrawing the additional surcharge on capital gains arising from the sale of shares and units whereas the long term capital gains arising out of sale of immovable property continues to attract the additional surcharge and is subject to the ‘super rich tax’. On the same premise, the super rich tax on the Long Term Capital Gains arising out of sale of Immovable Properties deserves to be withdrawn. This action of the FM is manifestly discriminatory and hit by Article 14 of the Constitution.

The FM should realize that the income arising out of the sale of immovable properties is a special category of income which has no facets of the normal/ regular income. Moreover the circumstances which are compelling the individual assessees to sell their personal immovable properties to meet their liabilities are to be kept in mind. This is just a special category of income and has nothing to do with his normal income. This is the reason it is subjected to Capital gains Tax instead of the normal Income Tax rates. To categorize such a lo +ng term gains under the category of ‘super rich income’ and to impose additional surcharge does not on the face of it appear just & legal.

If the FM wishes to see less defaults in public lending, wishes to have a better economy, wishes to see stability in the money market then she should decide to do away with such a super rich surcharge specifically on the Long term capital gains arising out of sale of immovable properties. This would bring unprecedented good results and boost the overall economy in our country.


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October 2021