Status as on- 25/02/2020
The Real Estate (Regulation and Development) Act 2016(RERA) was enacted to “protect the interests of home buyers and enhance transparency in the real estate sector.” However, despite the enforcement of RERA and Demonetization homebuyers being hassled to pay builders in Cash over property transactions is rampant in the Country especially in small towns and cities. Homebuyers must be cautioned to consider the consequences of such transactions.
CASH AND THE REAL ESTATE SECTOR
Demonetization had hoped to curb the practice of Real Estate Sector being used as a laundromat to convert black money into white. However, as per the survey conducted by housing agencies even “three years after demonetization, up to 30 percent of the total transaction value on the secondary (resale) residential market across India can still be paid in cash.”
The real estate sector due to rampant penetration of the black economy has shown sub-optimal growth thus comprehensive reforms and regulation are being implemented to standardize practices. Home Buyers are often lured into making payments in cash transactions under the guise;
- Avoidance or reduction in stamp duty and other registration charges;
- Builders often provide discounts for cash payments;
- Avoid paying Capital Gain Tax
LEGAL PROVISIONS
Under the RERA Act builders are mandated to deposit 70% of the amount collected from the sale of property to homebuyers into a separate bank account, funds of this account can only be accessed as per different stages of construction after being duly verified by an accountant. This not only ensures funds raised for a particular real estate project are not diverted to other uses but also maintains a trail and accounts for all money transactions within the real estate project.
Further RERA Officials are authorized to access and investigate the books of accounts of the Builders, as well as search and seize properties of the Builders. Maharashtra RERA has also warned that builders and homebuyers are found using black money they are likely to lose the property.
The Government through Tax Regime is hoping to utilize GST as a weapon against black money as the digital trail of transactions is hoped to serve as a deterrent non-reporting or undervaluing of property. Further Section 269SS specifies that any deposit or loan or any specific amount of Rs. 20,000/- or more should not be accepted or taken from any person other than by an account payee bank draft, account payee cheque, or through electronic clearing system via bank account. It is further cautioned that the flouting of this section is liable to impose a 100% penalty by the income tax department.
CONCLUSION
Homebuyers are cautioned that Builders demanding cash are often a sign of unscrupulous dealings and should not invest their hard earnings in such dicey investments. Homebuyers must safeguard their best interests and ensure that all transaction with builders is traceable, further due diligence must also be conducted with respect to documents such as Title Deed, approval of Sanctioned Building Plan, Occupancy Certificate, Tax Paid Receipts, Encumbrance Certificates, and Mutation Documents. There is a deep nexus between black money and the real estate sector, often the hard-earned money of Homebuyers is such cash transactions are unreported to the proper authority, Homebuyers are encouraged to break such nexus by refusing to engage with such builders, as the Government has been quick remove licenses and stop construction of property of such builders.
Disclaimer– The above article is based on the personal interpretation of related laws, which may differ from person to person. The readers are expected to take expert opinion before relying on this article. For more clarification, the readers can be expected at support@centrik.in
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