Can black money be controlled by increasing property circle/area rates ? Please discuss.

To support these conclusions, please refer to the White Paper release (on Black Money) by Finance Ministry of India in May 2012. Info @ below page, http://www.finmin.nic.in/reports/WhitePaper_BackMoney2012.pdf more  

So the conclusion (for State Governments) is that Circle/Area rates should be increased (to match market prices), and stamp duty rates should be reduced (< 5%). There is a need to implement a computer driven system, to keep track of ALL transactions in real estate sector. Further it should be complimented by a decision support system (like GIS) for ease of governance by state administration and state leadership. more  

The real estate sector in India constitutes about 11 per cent of the GDP. Investment in property is a common means of parking unaccounted money and a large number of transactions in real estate are not reported or are under-reported. This is mainly on account of very high levels of property transaction taxes, commonly in the form of stamp duty. High transaction taxes in property are one of the biggest impediments to the development of an efficient property market. With tax rates of over 5 per cent being imposed as stamp duty on buying of property, which otherwise also involves high transactions costs in terms of search, advertising, commissions, registration, and contingent costs related to title disputes and litigation, the property market remains one of the most inefficient asset markets in India. Unless the underlying distortions in this market are taken care of by appropriate reforms, it may be difficult to prevent such misuse. As per the division of powers between the states and the center, the real estate sector has largely been left to the state governments to regulate and tax. Even after the 73rd and 74th amendments to the constitution of India which recognized local rural and urban bodies as the third tier of government, the power to legislate with respect to real estate properties and transactions therein remains with the states. Different state governments have undertaken reforms in this sector at differing pace, while their implementation is further subject to the capacity and commitment of the respective local urban bodies. The role of the central government in reforms of the real estate sector is generally limited and advisory in nature. However, this has not prevented the Government of India from initiating steps to incentivize reforms. Its flagship programme, the Jawaharlal Nehru National Urban Renewal Mission (JNNURM), being implemented since 2005-06 aims to support urban infrastructural development by providing both monetary and non-monetary support, for reforms in different sectors of the state economy. It includes reforms of the stamp duty regime to restrict it to no more than 5 per cent. Some states have carried out this reform, but others are still persisting with very high stamp duty regimes. For states that are resource constrained there is a case for identifying and implementing adequate revenue-neutral substitutes to facilitate the rationalization of stamp duties. The current provisions of the direct tax legislation provide for mandatory furnishing of the tax identification number by the buyer and seller of an immovable property if the value exceeds Rs 5 lakh. Also, every registry of property is required to furnish annually information regarding transactions in immovable property if the value exceeds Rs 30 lakh. However, as many registrar offices still operate on a manual system, there are a number of gaps and lapses in the reporting of such transactions. To reduce the element of black money in transactions relating to immovable property and facilitate focused action based on actionable intelligence by monitoring agencies, simple reporting systems can be evolved that will facilitate the development of a nationwide database. Such a database should be computer driven with minimal interface between the authorities and the people, and accessible to all financial regulatory authorities. One of the measures for deterring use of the real estate sector for generation and investment of black money could be the provision of deducting tax at source on payments made on real estate transactions and mandating it as a pre-condition for registering of the transacted property. The provisions of tax collected at source on the developers of the property can also be considered as a possible policy measure. Electronic payment and electronic reporting can mitigate the compliance burden. Further, to reduce the element of black money in transactions relating to immovable property, the provision of no objection certificate (NOC) may be introduced in the income tax law with safeguards to reduce administrative complications and increased ease of compliance, so that an appropriate and uniform database is set up and a proper national-level regulation also put in place. The new system should be computer-driven with minimal interface between the tax authorities and taxpayers, and enforced by a dedicated unit within the investigative machinery of the income tax department on the basis of pre-determined parameters and standard operating procedures. So the conclusion is, - Circle rates should be higher (to match market prices) but stamp duty rates should be lower. - Implement a computer driven system to keep track of all transactions in real estate sector. This should be complimented by a decision support system for ease of governance by state administration and leadership. more  

Due to rising prices of real estate, the tax incidence applicable on real estate transactions in the form of stamp duty and capital gains tax can create incentives for tax evasion through under-reporting of transaction price. This can lead to both generation and investment of black money. The buyer has the option of investing his black money by paying cash in addition to the documented sale consideration. This also leads to generation of black money in the hands of the recipient. A more sophisticated form occasionally resorted to consists of cash for the purchase of transferable development rights (TDR). more  

While the source of generation of black money may lie in any sphere of economic activity, there are certain sectors of the economy or activities, which are more vulnerable to this menace. These include real estate, the bullion and jewellery market, financial markets, public procurement, non-profit organizations, external trade, international transactions involving tax havens, and the informal service sector. There are no reliable estimates of black money generation or accumulation, neither is there an accurate well-accepted methodology for making such estimation. more