As Anna Hazare and Baba Ramdev fast, I was not sure to sacrifice my lunch or not. However, I got into analysis of Black Money in Karnataka Real Estate which is a staggering sum. Here are the findings of my Research.
Karnataka State Government collected Rs 3758 Cr as Stamp Duty and Registration charges on properties in the FY 2010-11. According to the Government of Karnataka website, for most cases stamp duty is around 6%. Assume other charges and make it 6.5%.
- For stamp duty of Rs 3758 Cr to be collected by the Karnataka Government, they should have registered Properties worthy of Rs 57,815 Cr.
- The article further states that 68% of the income was from Bangalore. fair Enough, the skewed policy of Government and vested interest over the past few decades by Politicians is evident from this data. 68% of Rs 3758 Cr is Rs 2555 Cr.
- Let us assume around 50% of the transaction in Bangalore are that of Residential Apartments. Let us give the benefit of doubt to Residential Apartment Developers and Buyers and assume they have not transacted any Black Money and have paid everything by Cheque [Developers have their own ways to conceal this income, which consumers won’t know and will never know] This means Rs 2555 Cr / 2 = Rs 1277 Cr is White Money Duty paid by citizens to the Government who have dealt in residential Real Estate.
- Karnataka government has something called Guidance Value for Properties. However, for Residential Apartments it is between 20-50% [Luxurious Buildings] below the Current Market Price and for Land it is mere 25-30% of the Current Market Price and for Commercial Properties it is 25-40% less than the prevailing market prices.
- Out of Rs 3758 Cr stamp duty, Rs 1277 Cr belongs to honest Citizens. The remaining Rs 2481 Cr belongs to Partners in Real Estate Crime.
- Rs 2481 Cr collected at 6.5% means the Government Registered Properties [Agricultural Land, Plots, Commercial, etc] worthy of Rs 38,169 Cr. Now this Rs 2481 Cr is collected because of undervaluation of property [Well, Karnataka Government guidance Value itself is the First Crime here]
- In most cases of Real Estate transactions as pointed in point (6), they have paid 30-40% of the actual value in white. So this means they have just paid Rs 38,169 representing 40% of the actual cost. So the concealed amount or the Black Money Paid in Cash in Property Transactions in Karnataka along during FY 2010-11 is Rs 57,253 Cr. [Rs 95,422.5 – Rs 38,169 = Rs 57,253 Cr]
- Loss to Government of Karnataka in FY 2010 -11 due to Real Estate Black Money = Rs 3,721 Cr.
- Loss to Government of India in FY 2010-11 due to Real Estate Black Money Transactions in Karnataka = 20% of Concealed Amount is Income Tax evaded [57, 253] = Rs 11,450 Cr.
As you think of various ways to evade various Taxes – Sales, Income, Service, Central Excise etc The Indian society and we Citizens are equal partner in Crime. For Example, just like how Real Estate Developers undervalue properties by bribing the Ministers and IAS officers, Traders – Commodity [Paint, cement, Iron, Plastic, Utensis Household items etc ] bribe Sales Tax Officers, and the saga continues with most businesses out there.
Finally, before I sip my glass of Juice – Paying Taxes Honestly is the Best Charity a man can do. However, don’t forget to Plan Taxes by investing ELSS Funds to create long term wealth 🙂 What say ?
And Add another 4% of the Total Value of Transaction which the brokers pocket 2% at each end and is completely paid in Cash. Government of India Sucks!!!
Executive summary
It is a well established fact that India’s parallel economy is more than 50% and the money earned from such tax evasion is parked in Real estate. Also the Real-state sector is about 88% of India’s wealth and acts as the most legitimate way of parking black money or money earned from corruption or illegal activities.
The ease and lucrativeness of being able to park such money influences the investments in favor of real estate and away from legitimate businesses that create jobs and products in the economy. This not only leads to slower expansion of businesses but also resulting in India’s unusualy persistent high inflation. It sets a chain reaction of tighter monitory policy and high interest rates and further reducing the incentive to invest in businesses (due to high payback periods) and making real-estate the most favored option.
The effort so far from government like reducing stamp duty, and capital gain’s tax has resulted in no results. Even the best deterrent in form of 37i (chapter 20c) was further removed in 2002 to let the situation completely loose.
It is proposed that all the properties that get registered are opened for next 14 days with 10% increments by anybody. It would make black money transactions in real estate impossible. It is by far the most comprehensive and yet a simple policy change with far reaching immediate benefits by putting a stop on black money.
To restore our falling economy it is imperative to divert investments to businesses, job creation and stop our persistent inflation. It will also increase tax collections of both stamp duty, income tax and all other taxes. It will reduce budget deficits and strengthen the rupee and help reduce the interest rates. A double-digit growth is easily achievable before we loose the shining India completely.
It is now further proposed to file a PIL for the discrimination suffered by a pure ‘white man’ and ‘white companies’ in real-estate transactions in India.