IT Dept to Tax Unsold Property
Times are a changin’ if home prices become cheaper because of a proposal made by the revenue department that is still under consideration. The proposal demands that builders pay tax on their unsold inventory as this comes under stock-in-trade policy that is subject to taxation under ‘income from house property’, regardless if they are not rented out. According to the income tax department, this is one way for the Finance Ministry to accumulate more revenue and the Ministry is contemplating the proposal provided that they remain anonymous.
The data from property research firm Liases Foras has confirmed that those developers having 100,000 unsold properties across key metro cities will stand to lose as these holdings will attract tax, computed on the basis of notional annual letting value. Builders are left with the options of either selling their properties at a discounted rate, or getting into exorbitantly priced litigations.
Builders feel that if the proposal is enforced, it is unreasonable as they have no choice but to hold stock due to the difficulty of selling in a stagnating market. Managing Directors of ATS Infrastructure Getamber Anand is of the impression that cash-strapped builders will surely have to shut business as selling their stocks are essential to pay off debts. He feels that the value of selling property has inevitably decreased due to the current operating market forces that even reducing property prices can’t fix.
According to JC Sharma, Managing Director of Bangalore-based Sobha Developers, it is the job of real estate developers to build and sell houses, and in the process some inventory will unavoidably remain unsold. However, these properties should be considered stock-in-trade that doesn’t involve taxation. Builders are further perplexed because of the inconsistency exhibited by different circles of income tax departments that they fall under.
Source: The Economic Times
ATS Infrastructure, Finance ministry, Liases Foras, property research firm, Revenue department, stock-in-trade policy
