I-T Dept may tax unsold realty inventories to curb hoarders

The Income Tax Department may levy a fresh tax on the unsold inventories in the real estate sector from the next financial year to check hoarding, Business Standard reported.

Unsold flats that have been lying with developers for more than a year may be the next target of the I-T department to stall developers’ strategy of hoarding constructed property in anticipation of price escalation in future, a senior  I-T official told the paper.

A tax between 8 percent and 10 percent could be applied on the property that is held under "stock in trade" by the developers, an official said, adding that the Central Board of Direct Taxes (CBDT) has already sent the internal guidelines to I-T officials across the country.

“We are assessing the pan-Indian real estate data of unsold flats, which have been kept for more than a year. The tax department is taking the stocks of state-wise unsold inventories, which could fall under the new tax regime,” the official said.

The inventories are stagnant despite a fall in the property prices, which is not a good sign for the economy, he added.

It is proposed that Section 22 of the I-T Act will be extended to include unsold inventory, too. Under Section 22, currently, owners of houses pay a tax on the income accruing from the property.

The valuation of the property would be calculated based on the deemed annual value of the property, sources said.

The deemed value of any property is defined by the I-T Department as the sum for which the property might reasonably be expected to be sold or let out from year to year.

According to data compiled by real estate consultant Liases Foras, unsold inventory in the top eight cities, which indicate the broader health of the real estate market, stands at 1000,000 units, while 50 cities account for 1150,000 unsold properties.

The real estate market is witnessing a slump despite a 20 percent price correction in the past two years.

With the current pace of sale, developers would take at least 44 months to sell these inventories, according to real estate consultants.

“Taxing stocks in trade will increase the burden on the real estate developers, especially when they are finding it difficult to sell stocks at the current market price. However, this will induce developers to sell the property at a competitive price,” said Pankaj Kapoor, Founder and Managing Director of Liases Foras.