Why not bring back pre-emptive acquisition of undervalued property, Mr FM?

Why does the finance minister not turn to real estate to bridge his fiscal gap?

Rather than introducing inheritance tax, the finance minister should bring back 37i form of the Income Tax Act, 1961 which allowed the income tax department to make a preemptive acquisition of a property in case of undervaluation and then sell it subsequently through an auction/tender.

[caption id=“attachment_614749” align=“alignleft” width=“380”] Reuters[/caption]

This law was given up in 2001 with the excuse that the government was chock-a-block with unsold houses in a plummeting market. In realty the real estate lobby and some other vested interests were behind the removal of the scheme.

Logically,the scheme makes some sense. A cash-strapped finance ministry with little headroom to cut expenditure on subsidies and social sectors, can easily generate revenue by bringing by this clause.

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At a time when property prices are soaring through the roof, several properties are undervalued on paper as buyers look to save on taxes due to which the remaining amount is paid in black. If the finance ministry brings back the 37i form, the declared value of properties will go up which in effect will help garner revenue in the form of stamp duty and registration charges. The pre-emptory purchase scheme has the potential to not only stem black money from real-estate deals, but also fill the cash-strapped government’s coffers

A news report on mydigital.com says some members of a parliamentary consultative committee made a a strong case for a special tax focus on real estate.

P Chidambaram should seriously consider this proposal as it will bring several tax evaders into the tax bracket. In fact, according to an estimate of Deloitte Haskins and Sells partner Lakshminarayan, an effective tax rate of 6-7 percent on real estate value can generate thousands of crores.

However, since real estate is the ideal safe haven for post politicians to park their funds, it is unlikely that the finance minister will muscle up the courage to introduce any additional tax on real estate. After all real estate is big money with little or no risk except for clearance delays.