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Auditing may turn must for all property deals
September, 30th 2006
Benami property transactions and registration of undervalued real estate deals may not be that easy if the government's plans are implemented. The government is likely to make third-party auditing mandatory for all property transactions. Property transactions would require a certification from chartered accountants to ascertain that the property has not been undervalued to save registration fee. Registration fee (varies from state to state) is levied on the value of the property. According to sources in the urban development ministry, the proposal is already being discussed with various agencies, such as the department of income tax, the National Real Estate Development Council (Naredco) etc. "It is still in the concept stage and a notification is likely to be issued in a few months time. Various options are being mulled, based on recommendations from concerned authorities. One such recommendation is that, if the deal is above a certain amount, it should be notified to the administering ministry," said a senior government official. "Evidently, the market value mentioned in a ready reckoner in most of the cases is much higher than the actual market value of the properties transacted. As registration authorities refuse to accept the purchase deed to calculate the stamp duty, the parties are forced to pay higher stamp duty, higher than the actual amount paid by the purchaser to the developer or the dealer," he added. Experts, who are part of the ongoing exercise, feel that if implemented, the policy will have multiple benefits. "To start with, black money will be out of circulation in a big way, government revenues will increase substantially and deals will get more transparent," said Sumit Jha, deputy director, Naredco. Auditors, on the other hand feel, that though it's a good beginning, it's not an end in itself. "Only time will confirm the extent to which this regulation will serve the purpose of getting black money out of circulation," said Vishal Chandihok, partner, Grand Thorton, a leading auditing firm. "Practically, in all cases and especially in purchase of flat, parties cannot afford financially and timewise to contest the claim of stamp authorities and registration authority as to the market value of the property. People have no such time to take legal proceedings to challenge the valuation. People financially do not find it appropriate to contest market value because unless and until their document is registered they do not get any title. Therefore, in most of the cases and especially in Mumbai, people pay stamp duty at higher market value than actual consideration under the document," said a lawyer on the condition of anonymity. Under the present system, there is a rampant practice of property owners charging part of the deal in cheque (read white) and the rest in cash (read black). This has particularly been popular with buyers, as they can evade tax on the entire amount being paid in black. However, once third party auditing becomes mandatory, the government is confident this practice will drive bad money out of real estate to some extent.
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