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Government scraps proposal to levy 1 percent TDS on real estate transactions

The Financial Express, New Delhi

May 08, 2012

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The government has scrapped a proposal to levy a 1% tax deduction at source (TDS) on real estate transactions that was introduced in March as part of the Budget in a bid to deter the widespread flow of black money into the real estate sector.

As per the Budget speech, the seller of any property valued at R50 lakh in urban areas and R25 lakh in rural parts had to deduct 1% TDS from the buyer. Without the TDS, the property could not proceed for registration in the buyer's name.

The proposal was to “deter the generation and use of unaccounted money,” in the realty transaction, finance minister Pranab Mukherjee had said in his Budget speech in March.

"It's good that the government has abolished it as it was becoming another burdensome proposal, adding to red-tape," said Ravi Ahuja, executive director at property consultant Cushman & Wakefield.

He said the government should resort to alternative methods to curb the circulation of the black money in the sector. For example, some states have slashed the stamp duty on real estate and that has helped reduce the flow on unaccounted money into such transactions.

"As a process and concept it was very good, as it would have brought all deals under scrutiny, but the implementation would be almost impossible," said Anuj Puri, country head for Jones Lang LaSalle. “The implementation was going to be a very tedious process," he added.

The plan to levy the tax had invited criticism from various quarters from state governments to real estate firms who requested the finance ministry to withdraw it.

Among the vocal opponents was Narendra Modi, chief minister of Gujarat, who called the proposal anti-federal and wrote on a couple of occasions to the PM Manmohan Singh.

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