The following was asked in an unstarred question in Lok Sabha addressed to the Finance Minister, the Minister of State for Finance Pankaj Chaudhary.
Whether the Government has made any estimate of circulation of black money in real estate sector;
(b) if so, the details thereof; and
(c) the steps taken or proposed to be taken by the Government to curb the circulation of black money in this sector.
The Minister Replied with the following: –
There is no official estimation of circulation of black money in India, including in the real estate sector.
(c): Various steps have been taken in the recent past to reduce the circulation of unaccounted money in the real estate sector, some of which are as under:
Some of the legislative measures under the Income Tax Act, 1961 and the Income Tax Rules, 1962 are as below:
(i) Section 43CA and Section 50C were brought in for adoption of stamp duty value as consideration if it is more than the declared consideration.
(ii) Section 50CA read with the relevant Income Tax Rules, 1962, provides for taking of stamp duty value of immovable property held by an unlisted company for the purpose determination of capital gains on transfer of shares of such a company.
(iii) Section 56(2)(x) provides for taxing the amount of the difference between the stamp duty value and consideration received, if any, in case the same exceeds Rs. 50,000 in the hands of the recipient.
(iv) Section 194-IA provides that any person responsible for paying to a resident any sum exceeding Rs. 50 lakhs by way of consideration for an immovable property (other than agricultural land) has to deduct tax @1% of such sum at the time of payment.
The Finance Act, 2022 has amended this section to provide that in case of transfer of an immovable property (other than agricultural land), TDS is to be deducted at the rate of 1% of the higher value out of sum paid to a resident taxpayer or the stamp duty value of such property.
(v) In order to curb cash dealing in real-estate transactions, section 269SS was amended to prohibit receipt of any amount of Rs. 20,000/- or more for transfer of immovable property otherwise than by banking channel. Similar restriction is provided under Section 269T.
(vi) Section 285BA requires specified entities to furnish a Statement of Financial Transactions (SFT) in respect of specified financial transactions during the financial year. Such specified financial transactions include transactions in property.
(vii) Rule 114B and Rule 114E of the Income-tax Rules, 1962 provide for mandatory quoting of PAN and reporting of transaction of immovable property, if the consideration exceeds the respective thresholds specified in these rules.
The Benami Transactions (Prohibition) Act, 1988 was comprehensively amended through the Benami Transactions (Prohibition) Amendment Act, 2016 to provide for an effective regime for prohibition of benami transactions. Such benami transactions include transactions in the real estate sector also.
The information available with the Income Tax Department is analyzed using advanced tools, with the aim to verify the compliance of an assessee with the relevant tax provisions, create necessary deterrence and to take appropriate action as per law in cases where any discrepancy is found.
Appropriate actions as per the provisions of the Income Tax Act, 1961 include conducting searches and surveys, assessment of income, levy of tax, imposition of penalty, launching of prosecution etc.
In addition to the reply by the Minister, the following also lay down the legislative foundation of India’s fight against black money and money laundering, aimed at curbing parallel economies within the country: –
The Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (BMA), effective from July 1, 2015, is designed to levy taxes on concealed wealth belonging to Indians that is concealed in tax havens, banks, properties, and various assets under individual names, closely-held companies, discretionary trusts, and foundations.
Prevention of Money Laundering Act (PMLA), 2002 is an Act of the Parliament of India enacted by the NDA government to prevent money-laundering and to provide for confiscation of property derived from money-laundering. PMLA and the Rules notified there under came into force with effect from July 1, 2005.
Foreign Exchange Regulation Act (FERA) and Foreign Exchange Management Act (FEMA) –
Introduced in 1973, FERA came at a time when the Indian economy faced a significant depletion in foreign exchange (forex) reserves. In an effort to replenish these reserves, the government adopted a policy stating that all forex earned by Indian residents, whether residing within India or abroad, was the property of the Government of India and had to be surrendered to the Reserve Bank of India (RBI).
FERA imposed stringent regulations on all forex transactions directly or indirectly impacting India’s forex reserves, including the import and export of currency. However, the intended impact of FERA on the Indian economy did not materialize as expected, leading to its replacement by FEMA.
The Foreign Exchange Management Act, 1999 (FEMA), was enacted through parliamentary legislation and took effect on December 29, 1999. Aligned with the frameworks of the World Trade Organisation (WTO), this legislation played a crucial role in laying the groundwork for the Prevention of Money Laundering Act, 2002, which was implemented on July 1, 2005.
Understanding the legislative safeguards against the circulation of black money in the real estate sector is crucial for both individuals and businesses. The Finance Minister’s response in Lok Sabha shed light on the government’s proactive measures to curb the circulation of unaccounted money in real estate and other sectors.
Key provisions under the Income Tax Act, such as Section 43CA, Section 50C, and Section 56(2)(x), demonstrate the government’s commitment to fair valuation and taxation. Amendments in Section 194-IA ensure that TDS is deducted at an appropriate rate for property transfers. Furthermore, amendments to Section 269SS aim to discourage cash dealings in real estate transactions.
Additionally, the Benami Transactions (Prohibition) Act, 1988, was amended comprehensively in 2016 to strengthen the regime against benami transactions, extending its coverage to the real estate sector. The government utilizes advanced tools to analyze information and ensure compliance with tax provisions, taking necessary actions when discrepancies are identified.
The legislative foundation also includes acts like the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act (BMA) and the Prevention of Money Laundering Act (PMLA), both playing significant roles in taxing concealed wealth and preventing money laundering, respectively.
The historical context of FERA and its replacement by FEMA underscores the continuous efforts to regulate foreign exchange and strengthen India’s economic stability.
In essence, these legislative frameworks collectively form a robust mechanism to combat black money circulation in the real estate sector, reflecting the government’s commitment to transparency, accountability, and the overall economic well-being of the nation. Stay informed about these provisions to navigate the real estate landscape with integrity and compliance.
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