Enhancing Transparency and Reducing Capital Gains Tax in Real Estate Transactions

Capital Gains Tax and Enhancing Transparency in Real Estate Transactions

The Income Tax Department initiated the Annual Information Statement (AIS) for Assessment Year (AY) 2021-22. This extensive statement compiles around 46 financial transactions from the preceding year, notably including the purchase and sale of immovable property.

The sale of immovable property often results in considerable tax liabilities, primarily due to the high value of these transactions. This can lead to tax avoidance strategies among individuals. Currently, the Long-Term Capital Gains Tax (LTCG) is imposed at a rate of 20%, with the benefit of indexation.

To boost transparency in the sale and purchase of immovable property, the following recommendations are proposed:

Tax Rate Reduction:
- Propose a decrease in the long-term capital gains tax rate on the sale of immovable property from 20% to 5%. Alternatively, consider exempting long-term capital gains up to ₹5 lakhs, with a tax rate of 10% on amounts exceeding this threshold.
- Rationale:
  - Individuals face substantial tax liabilities when disposing of immovable property.
  - Lowering the tax rate may also help in reducing tax evasion practices.
Aligning Government and Market Values:
- It is advisable to minimize the gap between market value and government value by increasing the government value where necessary.
Reduction of Stamp Duty:
- It is recommended to reduce stamp duty across all states.
- Rationale:
  - Aligning recommendations 2 and 3 would alleviate the financial strain on buyers regarding stamp duty and registration fees, thereby ensuring that the transaction value is accurately represented in the sale deed.
  - These adjustments would also help in diminishing tax evasion.

Additionally, ensuring the efficient transfer of information from registrars to the Income Tax Department is crucial, as it directly affects the accuracy of data displayed in the AIS for each assessee.

Conclusion

Implementing these proposed enhancements can significantly ease the tax burden on taxpayers, reduce instances of tax evasion, improve tax collections, and increase transparency in real estate transactions.