real estate and black money

Property prices have skyrocketed in INDIA in recent years. prices of a 2BHK can easily be 40 lakh or above even a few Crores if the flat is in heart of a metro like Delhi, Bangalore, Chennai, Hyderabad or Mumbai etc. which a normal salaried employee can not afford without indulging in corruption.

Interesting thing is that seller expects aprroximately 50% of the price to be paid in CASH ( or black money ). even if a person who does not have black money while buying has to pay some amount in cash which becomes black ( or unaccounted money ).

when I investigated a little then I found out that the buyer has to pay LONG term capital gains tax or short term capital gains tax in INDIA on the sale of real estate ( if sold after 3 years it is LONG term tax otherwise short term tax ).

This tax can be significant amount somewhere around 10% to 30% of the SALE price of the property. To avoid paying this tax seller demands the money in cash.

This generates high volumes of black money which in turn has lot of side effects including devaluation of the rupee.

In western countries there is no TAX on the SALE of a property if sold after at least 3 years of occupation.

Now I keep wondering why the govt of INDIA does not allow people to sell the property , without any CAPITAL GAINS TAX, after 3 years or even after 5 years of self occupation just like in US and Canada.

A few things come to mind why govt of INDIA doesn’t move in the direction of NO-TAX policy after self occupation of property for 3 years or so :

  1. Most of the real estate is in the name of corrupt politicians or their relatives.
  2. if it is not in the name of politicians real estate is owned/controlled by corrupt bureaucrats and their relatives.
  3. these corrupt politicos and bureaucrats can easily hide their ill gotten wealth in real estate.
  4. most of the real estate is benami, if this policy of NO-TAX on selling of LONG term occupied property comes corrupt politicians and bureaucrats will be hardpressed to hide their ill gotten wealth ( as it is very difficult now to keep in SWISS accounts ).

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