A study by the comptroller and auditor general in India on the real estate sector has shown that 95% of real estate companies did not have a PAN number registered with the registrar of companies (ROC). In Andhra Pradesh and Telangana alone, 98% of real estate companies did not register their PAN with ROC.
As per the ‘Performance Audit on Assessment of Assessees in Real Estate Sector’, scrutiny assessments completed by Income Tax Department during the financial years 2013-14 to 2016-17, and the Registrar of Companies (ROC) of 12 states, were assessed. Focusing on the issue of whether or not real estate developers, builders, and agents are in the tax net, CAG gathered information from ROC, Real Estate Regulatory Authority (RERA) and Confederation of Real Estate Developers’ Associations of India (CREDAI). This data was then compared with the tax database of the Income Tax department (ITD).
According to the audit, of the 54,578 companies whose data was made available, ROCs did not have PAN information of 51,670 companies, which amounts to 95%. Looking at each state specifically, the report shows that in Andhra Pradesh and Telangana, of the total 7,520 companies, PAN details of 7,391 companies (98.3%) were not registered with ROC. In Karnataka, of 3,048 companies, PAN details of 1,853 companies (6.8%) were missing. In Kerala PAN details of 1,161 companies (65%) out of 1,787 companies were missing and 3,404 companies (79.9%) out of 4,258 in Tamil Nadu.
In Bihar, Gujarat, Odisha, Rajasthan and Uttarakhand, not a single real estate company declared their PAN details.
“It was difficult for Audit to ascertain from the information obtained from ROCs whether these companies were in the tax net of the ITD or not except in case of Andhra Pradesh & Telangana where Audit could identify PAN in respect of 147 of these companies,” the report states.
As per the Companies (Management and Administration) Rules, 2014, every company is required to file its annual report mentioning its PAN compulsorily. All corporates are also compulsorily required to file their Income Tax Returns (ITRs) with ITD irrespective of income or loss.
“Audit forwarded the information received from ROCs without PAN data to ITD to ascertain whether these companies were filing ITRs. However, no reply was received from ITD,” the audit report states.
The CAG finding implies that 95% of the major real estate companies may not have filed their returns and have not been in the tax net.
Even in terms of the companies that furnished their PAN details, the audit found that 159 (19%) of the 840 companies were not filing their ITRs.
The audit specifically on the real estate sector comes on the back of it being named as one of the sectors that is very vulnerable to the menace of black money.
“The Paper indicated that due to rising prices of real estate, the tax incidence applicable on real estate transactions in the form of stamp duty and capital gains tax can encourage tax evasion through under reporting of transaction price which leads to both generation and investment of black money,” the report states.
The audit report thus found that the IT department did not have a mechanism to ensure that those involved in high value real estate transactions paid tax on their capital gains.
CAG also verified records of 923 transactions pertaining to third parties of sale/ purchase of properties which were valued at over Rs 1 crore. Despite these transactions being under scrutiny by the Intelligence & Criminal Investigation wing of the IT department, it had failed to bring 142 such transactions into the tax net.
Through the audit, CAG found that the IT department did not have a proper mechanism in place to ensure compliance of filing of ITRs by the sellers of high value immovable properties.
“ITD was not effectively using other third-party data to widen their tax net. Audit is of the view that there is a need to strengthen the mechanism for identifying the non-filers…Due importance was not accorded by the ITD to monitor non-PAN transactions despite these being under the highest risk category from the point of view of tax evasion in general and due to these being transactions of real estate sector in particular,” the report noted.