Indian Real Estate Developers Likely to Move FM against Proposed Sales Tax for Properties..!

Central Govt proposes tax on developers on basis of assessed property valuation during transfer by inserting a new section

Indian Real estate developers / promoters are planning to move the finance ministry (FM) against a proposed tax on property sales, which they feel will slow the growth of a sector struggling to cope with sluggish economic expansion.

The government has proposed a tax on developers on the basis of assessed valuation of a property at the time of transfer by inserting a new Section 43CA in the Income Tax Act instead of levying tax on the basis of sale price, fixed when the project was initiated.

As housing prices escalated across India over a period, the government looks to raise additional resources by way of this move.

Developers / promoters said the proposed tax is presumptive & questioned the constitutional validity of it. They said this move may put buyers in a spot & reduce property sale in a slowing economy, defeating the governments plan to revive the real estate sector that is linked to a number of industries such as steel and cement and create jobs for thousands of construction workers.

The presumptive valuation and consequent taxation is a retrograde step, said Shriram Properties MD Mr. M Murali.

The move has left both sellers & buyers baffled.  Following the Union Budget 2013-14 announcement, some developers / promoters were seen persuading buyers to register their property before the new tax kicks in.

Some have said buyers that in case they fail to get the property registered before March 31, 2013 this year, they might have to make good the additional tax burden on sellers.T

o add injury to this, the buyer may have to shell out income tax too on the current value, which he or / she has not paid.

We are not very clear on the effective date and intend to get the same clarified by the government,

CREDAI National President Mr. Lalit Kumar Jain said ET. Real estate transactions in India will reduce if this new Section 43CA is introduced. The ministry said the new tax will come into effect from April 1,2014, contradicting its own statement that the tax will apply in relation to assessment year 2014-15.

We intend to table our woes on this issue before the government shortly, CREDAI Bengal President Mr. Harsh Vardhan Patodia said.

We have to understand whether taxation on a presumptive basis is constitutional or / not, he said.

The new section says where the consideration for the transfer of an asset (other than capital asset), being land or /  building or both, is less than the stamp duty value, the value so adopted or assessed or /  assessable shall be deemed to be the full value of the consideration for the purposes of computing income under the head profits & gains of business or profession.

The stamp duty values are much higher than the real sale values in many places,primarily because the government increases stamp duty values of land by 20 to 30 % every year, said Mr. Jain.

Sale price of properties do not usually climb up by the same percentage. Buyers pay stamp duty on the assessed value of the property around the time of transfer.The proposed move may vitiate genuine transactions and the guideline value is the indicator of the value rather than the true value arrived by the seller and buyer., Mr. Murali said.

Src: ET: ATMADIP RAY & ANURADHA HIMATSINGKA KOLKATA

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