The Finance Bill 2012 has been a landmark one in the sense that no other finance bill in recent times received as much coverage and as much focus as this one. There has been a hullabaloo about tax evasion for quite sometime now and many new proposals were floated in Finance Bill 2012. So what would you consider the most important of all these proposals?
Quite evidently, a layman would call "GAAR" or retrospective amendments to Section 9 (r.w. Sec 4) as the most breakthrough proposal. This comes naturally, given the wide propaganda and lobbying that FIIs and FDI based companies did criticizing these two provisions. Every economics-newspaper carried lengthy debates and columns almost on a daily basis for past three years. Some embassies, notably English, American, and Norwegian ones, also expressed their displeasure on these provisions.
But as an administrator and investigator of income tax in this land, I would opine that withholding tax (TDS) on immovable properties was the most breakthrough proposal of this bill. Hats off to people in TPL at North Block for coming up with such an innovative proposal.
Much earlier, in the pre-1992 era, a sale of property had to be vetted by IT department. If the department found that a property is being sold at an abnormally low price, it could even out-bid and purchase the said property (conditions apply). This was an inconvenient system, adding to red tape and bureaucratic delay in real estate transactions. It was removed for good. But owing to this, the IT department was depraved of much crucial knowledge on market values of immovable properties.
This proposal was landmark in the sense that many sellers make sale of property without even reporting the sale for capital gains tax. A major chunk of black money is generated from real estate, and this was the easiest and least intrusive method to tax same.
Alas! The proposal was rolled back when final bill was passed. It is interesting to note that while there was lot of hue and cry about GAAR and retrospective amendments (making them national issues, whereas these are basically issues concerning non-residents) there was literally no criticism of TDS on immovable properties in media. This was perhaps because TDS on immovable properties is the right way to go about in dealing with real estate.
There was not a whimper in media about TDS on immovable properties. Yet the provision was rolled back, because of petitions pointing out "the additional compliance burden this measure would impose." It must be noted that TDS was proposed only on sale value above Rs. 20 lakhs/50 lakhs. Yes there would be an additional compliance burden, but then such a burden exists for all other services/ sectors where TDS or TCS is charged. TCS has been imposed on gold too. Why would additional compliance be a major concern? I did not understand this.
Further, this TDS provision would have made a revolutionary impact on real estate sector. The sector, as of now, is mired by mafia interests, benami landhold, and goondagiri (for the lack of a better word). There are, further, many fraudulent companies making millions on real estate scams. This simple provision could have brought a huge change. Some of these are:
1. Properties of corrupt bureaucrats lying in name of their drivers, cooks, and keeps would be easily traceable.
2. A comparative analysis of actual market value (which is much higher than stamp value) could have been made from data on TDS deductions. Information will be available centrally and in a digitized form. Presently only sub-registrars have such data and not in digital form. This makes statistical analyses difficult.
3. It would give intelligence agencies necessary data on mafia money and drug money.
4. Those non-filers who sell ancestral properties at high prices (such as in Noida and Gurgaon) will be forced to file return for capital gains tax.
5. This would bring systemic changes in the parallel black market. Major components of the black market are real estate, gold trade, and hawala. Giving taxmen the "information" on property sale would go a long way in curbing this.
However, it seems that this was too drastic a step for the parallel economy to digest. This simple proposal would have shaken the whole parallel economy; its primary weapon for sinking black money is land. Most interesting is the fact that there was no criticism of the proposal in media. It was rolled back without a debate in public (a public debate would establish its utility for sure). After it was rolled back, there was hardly a murmur in media on why the proposal was killed.
All things said and done, the proposal for TDS on immovable properties must have given sleepless nights to the all-powerful realty lobby.
Quite evidently, a layman would call "GAAR" or retrospective amendments to Section 9 (r.w. Sec 4) as the most breakthrough proposal. This comes naturally, given the wide propaganda and lobbying that FIIs and FDI based companies did criticizing these two provisions. Every economics-newspaper carried lengthy debates and columns almost on a daily basis for past three years. Some embassies, notably English, American, and Norwegian ones, also expressed their displeasure on these provisions.
But as an administrator and investigator of income tax in this land, I would opine that withholding tax (TDS) on immovable properties was the most breakthrough proposal of this bill. Hats off to people in TPL at North Block for coming up with such an innovative proposal.
Much earlier, in the pre-1992 era, a sale of property had to be vetted by IT department. If the department found that a property is being sold at an abnormally low price, it could even out-bid and purchase the said property (conditions apply). This was an inconvenient system, adding to red tape and bureaucratic delay in real estate transactions. It was removed for good. But owing to this, the IT department was depraved of much crucial knowledge on market values of immovable properties.
This proposal was landmark in the sense that many sellers make sale of property without even reporting the sale for capital gains tax. A major chunk of black money is generated from real estate, and this was the easiest and least intrusive method to tax same.
Alas! The proposal was rolled back when final bill was passed. It is interesting to note that while there was lot of hue and cry about GAAR and retrospective amendments (making them national issues, whereas these are basically issues concerning non-residents) there was literally no criticism of TDS on immovable properties in media. This was perhaps because TDS on immovable properties is the right way to go about in dealing with real estate.
There was not a whimper in media about TDS on immovable properties. Yet the provision was rolled back, because of petitions pointing out "the additional compliance burden this measure would impose." It must be noted that TDS was proposed only on sale value above Rs. 20 lakhs/50 lakhs. Yes there would be an additional compliance burden, but then such a burden exists for all other services/ sectors where TDS or TCS is charged. TCS has been imposed on gold too. Why would additional compliance be a major concern? I did not understand this.
Further, this TDS provision would have made a revolutionary impact on real estate sector. The sector, as of now, is mired by mafia interests, benami landhold, and goondagiri (for the lack of a better word). There are, further, many fraudulent companies making millions on real estate scams. This simple provision could have brought a huge change. Some of these are:
1. Properties of corrupt bureaucrats lying in name of their drivers, cooks, and keeps would be easily traceable.
2. A comparative analysis of actual market value (which is much higher than stamp value) could have been made from data on TDS deductions. Information will be available centrally and in a digitized form. Presently only sub-registrars have such data and not in digital form. This makes statistical analyses difficult.
3. It would give intelligence agencies necessary data on mafia money and drug money.
4. Those non-filers who sell ancestral properties at high prices (such as in Noida and Gurgaon) will be forced to file return for capital gains tax.
5. This would bring systemic changes in the parallel black market. Major components of the black market are real estate, gold trade, and hawala. Giving taxmen the "information" on property sale would go a long way in curbing this.
However, it seems that this was too drastic a step for the parallel economy to digest. This simple proposal would have shaken the whole parallel economy; its primary weapon for sinking black money is land. Most interesting is the fact that there was no criticism of the proposal in media. It was rolled back without a debate in public (a public debate would establish its utility for sure). After it was rolled back, there was hardly a murmur in media on why the proposal was killed.
All things said and done, the proposal for TDS on immovable properties must have given sleepless nights to the all-powerful realty lobby.
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