Taxing Inventory Will Burden Builders Further

Taxing Inventory Will Burden Builders Further

According to a media report, from the next financial year, real estate developers who are holding an unsold unit for over a year will have to pay 8-10 per cent of the property value as tax. So far, developers do not pay any tax on property that they hold as stock-in-trade.

The little tweak

According to the income tax laws, properties, including flats, shops, office space, factory sheds, agricultural land and farm houses are “house property”, and their annual worth is taxed under the head “Income from House Property”.

Under Section 22, the I-T Act imposes the tax on house property that is not occupied by the owner – the tax has to be paid whether the house is rented out or is lying vacant. The tax is imposed on higher of either the actual rent received or the notional letting value.

However, Section 22 does not cover the property which is being used for the purpose of business or profession. Such properties are liable to be taxed under the head of “Income from Business and Profession”. There is a distinction between capital asset and business asset or stock in trade. To tax the housing inventory, stock-in-trade will not be brought under the head Income from House Property.

“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,” a report published in Business Standard quoted an I-T official as saying.

The likely impact

With this move, the government is aiming to force developers to end the artificial shortage created in the housing market. This is also one way to escape taxes, too. Because they will have to pay taxes for holding, developers would now put all their might to sell off their existing stock. For a home buyer, this means more options to pick from, at more reasonable rates.

However, there is another way to look at it. Developers who have not been able to sell their projects owing to genuine reasons will also have to suffer. The added tax liability to keep the stock may force real estate developers to go for distress sale, something that will cause a major dent in their already depleting finances.

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