Unsold realty inventory under Income Tax radar to check hoarding

The beleaguered real estate sector may face action over unsold inventories lying with them for more than a year. The Income Tax (I-T) department is set to tax unsold flats from the next financial year, said a Business Standard report.

The move would reduce developers’ strategy of hoarding constructed property in anticipation of price escalation in future, a senior I-T official told the newspaper.

According to the report, a tax between 8 percent and 10 percent could be applied on the property that is held under "stock in trade" by the developers. The Central Board of Direct Taxes (CBDT) has already sent internal guidelines to I-T officials across the country, the report said.

“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,” the official was quoted as saying. 

The official said that inventories are stagnant despite a fall in the property prices, which is not a good sign for the economy.

The report further informed that Section 22 of the I-T Act will be extended to include unsold inventory too. Under Section 22, owners of houses pay a tax on the income accruing from the property. The cost of the property would be calculated based on the deemed annual value of the property, the report said.

Citing data compiled by real estate consultant Liases Foras, the report said that unsold inventory in the top eight cities stands at 1000,000 units, while 50 cities account for 1150,000 unsold properties.

It may be noted that the real estate market is witnessing a slump despite a 20 percent price correction in the past two years.