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New taxes will give rise to black money in realty deals: Experts

Saturday, 2 March 2013 - 10:30am IST | Place: Mumbai | Agency: DNA
Experts feel the addition of taxes like tax deducted at source (TDS), service tax and capital gains tax on the purchase and sale of immovable property will facilitate the exchange of black money in the real estate market.

Experts feel the addition of taxes like tax deducted at source (TDS), service tax and capital gains tax on the purchase and sale of immovable property will facilitate the exchange of black money in the real estate market. In fact, real estate consultants and developers too are of the opinion that this move will pump in a lot of unaccounted for money in realty deals.

“Many people will undervalue a property to cut down on the payments of various taxes. It is sad that instead of bringing white money into the market, people will prefer to use up their black money. The government should understand the crux of this problem and reduce the number of taxes levied,” said Ramesh Prabhu, chairman of Maharashtra Societies and Welfare Association (MSWA).

Shailesh Puranik, managing director of Puranik Developers, said that because of the introduction and subsequent rise of various taxes, buyers were forced to spend a huge amount of money on taxes. “The list of the taxes is unending. Each year, besides the local civic body tax, either the state or Central government comes up various taxes to add to its revenue,” he said.

Two years ago, the Central government had levied service tax and capital gains tax while the state introduced value added tax (VAT). Last year, service tax and education tax were imposed. This year, the government has levied 1% TDS on property deals of and over Rs50 lakh and service tax on deals of and over Rs1 crore or for a 2,000 sq ft flat. Due to these taxes, the cost of the house will automatically escalate.

“So many taxes will fuel the black money market. This is not good for the economy. The government should find a way that will not burden buyers,” Puranik added.

Vinod Sampat, advocate and tax expert, said, “The number of taxes will just hamper the prospects for a buyer who wants the house by paying money in white. Cheque payments help increase the home loan amount.”

Sampat added that if a person has bought the house and sold it within three years from the date of registration, then whatever the amount he has earned as profit will be treated as capital gain.

“This gain will be become the earned income and on this almost 30% and more tax will be charged by the government. If he sells after three years, then only 20% taxes will be charged. Due to high tax, people undervalue the property and take 30% to 40% of the total cost in black,” Sampat added.

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