by
Subhash Chandra Agrawal
Once there used to be a provision under section 269U of Income Tax Act 1961 that the government had an option to purchase the property at 10-percent above the sale-consideration declared in Income Tax return by the buyer of the property. But this provision has since been deleted from the Income Tax Act with effect from 01.07.2002 because of practical problems faced by the government where firstly the government required too much funds for investing to purchase such properties which Income Tax Department considered undervalued for declaration in Income Tax returns. But the other problem was deliberate acquirement of properties under this provision where the government ultimately could not get even the price of acquisition while auctioning such properties.
Now only provision for Income Tax Department is to take difference between purchase-price and circle-rate to consider as “Income from Undisclosed Sources”. But this provision in itself faulty where there are areas say New Friends Colony in New Delhi where Circle Rate is higher than the Market Rate, becoming rather problematic in property-deals with peculiar situation arising where Stamp Duty has to be paid on value higher than the real purchase value. On the contrary, in most cases, involvement of unaccounted cash is usually prominent in such deals.
Involvement of unaccounted cash in property deals can and should be prevented to a great extent by firstly reducing rate of Stamp Duty on property deals which may be drastically cut to say 5-percent uniformly throughout the country including municipal charges with 1-percent discount in case the property is purchased exclusively in name of a woman. This 1-percent discount may be proportionately cut in case the said property is purchased jointly in names of men and women.
Secondly there may be a permanent Voluntary Disclosure Scheme whereby any person may declare any unaccounted income including cash in his/her Income Tax Return voluntarily under the maximum Income Tax slab which should be restored back to 30-percent as was originally implemented as per recommendations of Raja Chelliah Committee. Subsequently with additives like Surcharge, Cess etc, this maximum Income Tax slab has accelerated practically to about 43-percent. If some property-seller declares unaccounted cash in his Income Tax return in a particular year, then Income Tax Department will automatically get a clue about the property-purchaser who might have given unaccounted cash for purchase of the property.
Such a permanent Voluntary Disclosure Scheme can in addition have a provision for compulsory long-term investment of say 20-percent of unaccounted money in bonds of some public-sector company with floating interest rate payable annually equivalent to interest rate provided on RBI bonds which is presently about 8-percent per annum. One such company can be Indian Railway Catering & Tourism Corporation (IRCTC) whose scope may then be increased manifolds by entrusting IRCTC to set up its units in every district of the country to produce baked products for use in Mid-Day meal-scheme for schools and railway-catering..
Dual provision of long-term capital gain on property-sale with either 12.5-percent on total capital-gain or 20-percent on balance of re-investment in property upto rupees ten crores should be replaced by a net long-term capital-gain of 10-percent like exists for capital gain from sale of shares, so that people may find it advantageous to make property-deals accounted without involvement of unaccounted cash.
What is now needed is to develop a special website to be created by Income Tax Department where prospective sellers of properties may be compulsorily required to put complete details of the properties intended to be sold on the website. Sale Price required or negotiated with someone by the seller should be mentioned on the website. Then any one desiring to purchase the said property above the required/negotiated price within some stipulated time period say 30 days from putting the details on website, may have right to purchase the said property at the price offered by him by depositing 10-percent as earnest money. In case there may be more than one bidder for the same property, then the bidder with highest bid may have right to purchase the property at the bid-price by paying balance money within ten working days of finalization of the bid process. In case the successful bidder fails to deposit balance purchase-consideration in stipulated time period, earnest money deposited by him may be forfeited, and the next successful bidder may be given right to purchase the said property. If no bidder comes forward to offer a better price, the seller may be allowed to go ahead with the deal negotiated by him. Suggested website should be quite elaborative firstly state-wise, then district-wise and then area-wise with adequate publicity amongst the property-brokers. Suggested provision if implemented after careful study, will effectively check to a large extent role of black unaccounted money in property-deals. Provision will be a boon for property sellers also to get a genuine good price for their properties rather than being caught up in a nexus of middlemen and property brokers who usually swallow a big margin in property deals depriving innocent property sellers to get real value of their properties. Suggested website should have a separate section for properties put for auction by banks in case of recoveries of their dies against loans. Such a well-publicized and elaborative website combined for all the banks to be accessed by property-brokers as well will also be a boon for banks and the genuine investors in properties.
All these steps will induce transparency in property-deals and prevent involving of unaccounted cash in property deals apart from much-needed boost to housing sector, ultimately resulting in much more revenue generation through property deals.
Lastly but most importantly, India should study and implement best practices of countries like Sweden known for cashless economy where use of credit-cards is very common. In India, people avoid use of credit-cards because traders usually charge two-percent extra if payment is made through credit-card especially where trade-margin is quite low sometimes even two or less than two-percent. This is because banks charge about two-percent from payments received through credit-cards. Banks promote use of credit-cards by offering various incentives and discounts on select items/services if payment is made through credit-cards. Indian government should fix bank-charges for payments received through credit-cards to just half-percent that to be borne by Union government. Such a system will be beneficial for banks because use of credit-cards will increase manifolds. Union government will earn extra revenue because of better tax-compliance. Another cause of creation of unaccounted cash is faulty GST structure where unused GST invoices are ‘sold’ by giving cash in return of bank-transaction by seller of such unused GST invoices by sharing GST between buyers and sellers of unused GST invoices, this being the main reason for increased cash circulation even after demonetization done on 08.11.2016. Input Tax Credit (ITC) must be allowed only for tradable commodities and not at all for commodities used for expenses including also where depreciation is claimed. Other such steps should be taken so that India may march towards cashless economy as visualized by Prime Minister at time of currency-demonetization on 08.11.2016.
Writer is Guinness World Record Holder for writing most letters and RTI Consultant
