The government has drafted a proposal in budget 2005-06 to levy 5 percent income tax on transfer of property. The adjustable withholding tax may be levied at the minimum rate of 5 percent on plots, houses and other property in urban areas. However, it has been proposed to levy tax on the property having an area of over 250 sq yards. In case the purchaser does not want to explain the source of investment, it would be considered as his final tax liability. Sources told Business Recorder on Wednesday that CBR is examining a proposal to bring the real estate sector within the tax net.
CBR Chairman has repeatedly said at various forums that there is no doubt that people are earning a lot of money through real estate business and paying no tax to the federal government. The CBR will see what can be done to tax this business while remaining in legal and constitutional framework.
Commenting on the proposal, chartered accountants opined that it is, in fact, known to everyone that actual prices of real estate are not recorded in the conveyance deed.
The understatement is done to the extent of 70-80 percent of the value of the property being transacted. The proposed withholding tax will be charged on 20 to 30 percent of the actual purchase/sale price, which will only be a peanut. To bring the transaction in real estate within the realistic ambit of tax, it is proposed that government should be empowered to purchase the property at the declared price if the purchaser of the property is adamant on the correctness of the declared/recorded price.
Tax experts said that in case the purchaser refuses to surrender the property in favour of the State at the declared price, he should be bound to pay 5 percent tax on the fair market value of the property as determined by tax officers. Similar law exists in the statute book of India, which helps in taxing the real value of transaction.
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