Changing scenario of Indian real estate tax and regulations
Affording a house and consistent increase in the living cost due to tax implications always finds its way around as the ideal topic of discussion among people. In recent times, the tax and regulation body has gained much significance in the Indian real estate sector, helping every organization involved in this segment to turn into a blue chip company.
However, property consultants confirm that the construction industry in India is laced with too many tax regulations and any further enactment is quite likely to produce adverse results in this sector. The addition of any further tax can dampen the uniform growth and promotion of the realty sector significantly.
Withholding of tax on transfer of immovable property is the recent provision of the Income tax Act that has raised severe concerns among the property dealers and realty developers. The implication of the new law is an attempt by the Government to administer certain factors of the real estate sector via tax measures (and contribute to revenue collection).
Withholding Tax on immovable properties
As an attempt to trigger the revenue collection and address the present fiscal deficit, the government has levied withholding of tax on immovable property, from 1st June 2013. According to the proposed law, any type of immovable property (except an agricultural land) that values over Rs 50 lakh, is subjected to withholding tax of 1%.
For starters, withholding tax may simply be defined as an Income tax that is deducted from the payment of a recipient. Such tax is deducted generally by a vendor, who remits the amount to the tax authorities. To add to it, withholding tax can also be titled as Advance Income tax by a payee in his/her annual returns.
The newly implemented withholding tax is enforced on three types of immovable property, namely-building, land and a certain section of the building.
By facilitating the purchasers to pay tax on-line even in the absence of a TAN ( Tax deduction and collection account number), the government has attempted to get its foot in the door. However, with the implication of the new rule, an air of confusion has simmered among the property buyers regarding the exact source of withholding tax deductions-monthly installments or last payment.
Withholding tax benefiting end-users
The proposed law is aimed to benefit the end-users by addressing the housing loan interest deductions for individually owned property. Though the proposed law has enhanced the deduction limit by Rs 1 lakh, it will benefit only those who are buying homes or land for the first time, valuing within Rs 25 lakh. Such a move by the government is expected to help the lower-income buyers and end users afford a reasonable abode conveniently.
The growth of the real estate sector requires immense understanding and aid from the government. Rationalizing of the tax and regulations by the government will guide the realty sector to contribute towards economic prosperity significantly.
According to the developers, the sole reason for the introduction of withholding tax in the Finance bill 2013, is the lack of PAN number provided by a seller/buyer in major business transactions of the previous year. As an attempt to keep a proper track of every realty transaction, the Finance minister has come up with this all new provision by infusing section 194I A with the present TDS rule, under the Income Tax act, 1961.
