Finance minister Arun Jaitley says govt is considering making the use of Aadhaar mandatory for real estate transactions Remya Nair | Asit Ranjan Mishra | Madhurima Nandy
If Aadhaar is made compulsory in real estate purchases, it could also potentially solve the problem of property buyers using fake and multiple PAN to register their transactions to avoid detection by the income tax department.
Photo: Ramesh Pathania/Mint
New Delhi/Bengaluru: In a move aimed at curbing the use of black money in property deals, the government is considering linking real estate transactions with Aadhaar, the unique identity number. If implemented, the move could provide a trail of all real estate transactions by an individual. It could also potentially solve the problem of property buyers using fake and multiple permanent account numbers to register their transactions to avoid detection by the income tax department.
Real estate, mining, bullion and jewellery are some of the sectors believed to have large amounts of black money—unaccounted-for and untaxed wealth—in circulation. In an interview, finance minister Arun Jaitley said the government is considering making the use of Aadhaar mandatory for real estate transactions. “Aadhaar is a good idea,” he said, while emphasizing that the current centralized monitoring systems that the government has in place also provide a strong trail of such transactions. Implicitly, the proposal is yet another endorsement of the idea of Aadhaar, which was put in place by the previous government. Once implemented, it will extend the use of the unique identity programme to a new platform.
Experts welcomed the move, saying it would stimulate the clean-up of a sector notorious for opaque practices skirting the law. If the use of the Aadhaar card is made mandatory in property transactions, it will have huge implications for the sector, said Amber Maheshwari, managing director, corporate finance, Jones Lang LaSalle, a property advisory. “Not only will it boost transparency, but it will also provide a critical data base on the supply-demand, sales and pricing trends in real estate,” said Maheshwari. Chasing black money in circulation domestically was a key message delivered by Jaitley in his meeting with top officials of the income tax department last week. “We should not lose track of domestic black money.
Every taxman should know where it is operating—in mining, in land, jewellery, in luxury items, in real estate. If you have to increase the tax base, you have to reach more areas. If the black money component can be brought back into the national mainstream, probably our GDP (gross domestic product) growth rates will be much higher,” Jaitley said. Bringing black money stashed away in overseas accounts was a key electoral promise by the Bharatiya Janata Party (BJP). Since taking charge in May, the BJP-led National Democratic Alliance government has constituted a special investigation team on the orders of the apex court to track black money. The government was also forced to disclose names of 627 foreign bank account holders received from the French government to the apex court.
Investment in property is considered to be one of the most common ways to park black money, as a large number of transactions in real estate are not reported or are under-reported to avoid taxes. The tax department, over the last few years, has taken many steps to curb black money in the real estate sector. Last year, the Central Board of Direct Taxes made it mandatory for a buyer of immovable property to compulsorily withhold tax at the rate of 1% of the property transaction where the value exceeds Rs.50 lakh. In case the seller does not have a permanent account number, tax at 20% has to be deducted.
“The procedures involved in a real estate transaction are time-consuming and now if the Aadhaar clause is introduced, it will be an additional procedure which will also be time-consuming,” said a Mumbai-based real estate developer, who didn’t wish to be named. Not just property transaction, the massive number of so-called benaami land transactions that are widely prevalent in the sector will also be mapped, if the use of the Aadhaar number is extended to land deals as well. A benaami transaction is one in which property is transferred to a person who acquires it for someone else, who pays for it using black money. “Apart from the obviously positive effects, it will make a big difference in tax matters,” said Pankaj Kapoor, managing director, Liases Foras Real Estate Rating and Research Pvt. Ltd. Often, individuals exploit tax provisions during property transactions, and with Aadhaar, that will be in check, said Kapoor. The use of black money in real estate is rampant, especially in high-value, investor-led transactions and in the form of land deals as well.
Sunil Rohokale, chief executive and managing director of financial services firm ASK Group, said the main problem concerns stamp duty tax evasion, where buyers pay tax based on the lower ready reckoner values of the government rather than the much-higher market values at which transactions take place. Rohokale said he wasn’t quite sure how Aadhaar would curtail that. However, Rohokale added, if the bandwidth of the Aadhaar card is expanded and it functions as a social security card at some point of time, it could boost transparency. Aadhaar is already being used by the government for cash transfers of subsidies directly into the bank accounts of beneficiaries to plug leakages. The government is using it to identify beneficiaries for transferring funds under scholarship schemes, pension money, cooking gas subsidy as well as seeding of bank accounts to weed out multiple beneficiaries under the government’s financial inclusion programme Jan Dhan.
