Black Money Persists in Indian Real Estate Nine Years After Demonetization, Survey Reveals

Nine years after India's demonetization drive, the real estate sector still grapples significantly with black money and corruption. This manifests as inflated property prices and a prevalence of cash transactions aimed at tax evasion. While initiatives like linking Aadhaar with property records and promoting digital payments aim to increase transparency, they haven't eradicated the issue.

Dr. Rakesh Verma, a former bureaucrat, noted in a policy paper that up to 50% of high-value property deals involve unreported cash. He attributes this to regulatory inefficiencies, such as the need for 40-70 approvals, which create bottlenecks, foster corruption, and drive up costs for buyers.

A recent survey by LocalCircles, gathering over 39,000 responses, found that 26% of property buyers in the last three years paid over 50% of the transaction value in cash, with a total of two in three buyers using cash for some part of their payment. This practice is particularly common in land and plot transactions, and resales where actual market rates far exceed official 'circle rates' set for registration.

Data from the Minister of State for Finance, Pankaj Chaudhary, shows the Income Tax Department detected significant undisclosed income through survey operations, though the number of operations has decreased while the average undisclosed income per survey has risen, suggesting a more targeted approach.

Impact This persistent issue of black money in real estate distorts market valuations, reduces government tax revenue, and can deter legitimate domestic and foreign investment. It creates an uneven playing field for honest buyers and developers. Potential government crackdowns or policy reforms to enhance transparency could impact transaction volumes and costs. Rating: 7/10.

Difficult Terms: Demonetization: The act of stripping a currency unit of its status as legal tender. In India, it was enacted in November 2016, with the withdrawal of 500 and 1000 rupee notes. Black Money: Funds earned illegally or undeclared to tax authorities. In real estate, it often involves cash payments to evade taxes and launder illicit gains. Bureaucratic Hurdles: Complex and time-consuming administrative procedures and regulations imposed by government officials. Circle Rates: The minimum property value at which a property transaction can be registered with the government. These are set by state governments and are often lower than the actual market value. Kachha-Pakka Ratio: A colloquial term referring to the split of a property transaction's payment into 'pakka' (formal, recorded, tax-paid) and 'kachha' (informal, cash, often undeclared) components. Undisclosed Income: Income that has not been reported to the tax authorities, often referred to as 'black money'.