Taxation Model for Wealth Creation for Next Level Economic Growth:

Commercial and Industrial Properties:       

Suggestion: Eliminate stamp duty and GST on commercial and industrial property transactions or cap them at a nominal rate (e.g. 0.5 to 1% GST, no stamp duty). Reduce LTCG tax to 5% or preferably less for these properties.

Impact: Lower taxes encourage formal transactions, attract investment, and boost commercial real estate demand, projected to grow with 2,100 global capability centres (GCCs) by 2030.

Residential Properties: Tax residential properties based on land area and construction size, mirroring municipal property tax structures, to ensure fairness and affordability.

Suggestion: Replace flat stamp duty rates with a tiered GST-based system (e.g., 1% for properties below 500 sqm, 2% for 500–1,000 sqm, 3% for above 1,000 sqm). Exempt GST on completed residential properties and reduce LTCG tax to a maximum of 5%.

Impact: This would reduce tax evasion, enhance affordability and support initiatives like Pradhan Mantri Awas Yojana (PMAY).

Agricultural, Gauchar and Non-Agricultural Land:

Given their role in food security, rural livelihoods and development, these land transactions should be minimally taxed or exempted to prevent black money generation and circulation while supporting farmers and development.

Suggestion: Include agricultural, gauchar and non-agricultural land in the unified GST framework with a nominal rate (e.g., 0.5–1%) or provide tax exemptions for small and marginal farmers.

Impact: This would encourage formal transactions, reduce unaccounted cash transactions and support rural economies and development projects.

Other measures to eliminate the black economy in the real estate sector:

Digitisation of Land Records:

Digital India Land Records Modernisation Programme (DILRMP) has digitised 95% of village land records, assigning Bhu-Aadhaar to over 9 crore parcels. Urban areas lag, enabling fraud.

Suggestion: Accelerate urban land record digitisation, integrate GIS mapping (as in Delhi and Kerala), and link records with PAN and Aadhaar for transaction tracking across all land types, including agricultural, gauchar and non-agricultural land.

Impact: Digitisation ensures transparency, reduces fraudulent transactions and supports price rationalisation.

Expanding the Real Estate Regulation Act (RERA):

RERA (2016) excludes land transactions, a major black money source.

Suggestion: Extend RERA to regulate all land deals (including agricultural, gauchar and non-agricultural land), mandating registration and transparency, with a national regulator to oversee compliance by the state regulators.

Impact: This would reduce benami deals and ensure accountability.

Enforcing the Benami Transactions (Prohibition) Act:

Assets worth Rs 1,800 crore, including 621 properties, have been attached for transactions above Rs 30 lakh.

Suggestion: Increase scrutiny of high-value land deals, including agricultural, gauchar and non-agricultural land. Conduct regular audits and impose harsher penalties.

Impact: This deters benami ownership and black money parking.

Single-Window Clearance System:

Decentralised approvals foster corruption and cash bribes.

Suggestion: Implement a centralised, time-bound, digital single-window clearance system for real estate and land transactions, including agricultural, gauchar and non-agricultural land.

Impact: This would streamline approvals and reduce unaccounted cash paid as bribes.

Public Disclosure of Assets:

A 2024 survey showed 67% support for terminating officials who fail to disclose assets.

Suggestion: Mandate asset disclosure for officials and their families with strict penalties for lack of compliance.

Impact: This deters illicit real estate investments by public officials.

Control over Hawala Economy:

Any cash or journal “off record” entries from overseas or from within the country generally end up in the black economy pool of real estate.

Suggestion: Trails must be examined with this in view for any such FEMA or PMLA violation.

Impact: This would help in curbing the black economy in the real estate sector.

Price Rationalisation:

Black money inflates property prices, reducing affordability.

Suggestion: Use digitised records and transparent transactions to monitor prices and force the disinvestment of benami properties.

Impact: Lower prices would enhance affordability and reduce black money circulation.

4. Conversion of Agricultural Land to Non-Agricultural Land:

Conversion of agricultural land to non-agricultural (NA) land involves changing the land’s designated use from agriculture to residential, commercial, industrial or other purposes governed by state-specific land revenue laws (e.g., Land Revenue Codes in Gujarat, Maharashtra). This process is critical due to urbanisation, industrialisation and infrastructure development, but is a hotspot for black money due to high costs and regulatory loopholes.

Procedure:

Landowners apply to the state’s revenue department or local authorities (e.g., District Collector) for NA status, providing documents like land records, ownership proof and a project plan. Approval involves land surveys, environmental clearances and compliance with zoning regulations. The process varies by state, with timelines ranging from 3 months onwards.

Conversion Charges:

States levy conversion fees, often based on land value, area or intended use.

Gujarat: Conversion fees range from Rs 200–2,000 per hectare, plus a premium based on market value (e.g. 20–40% of land value for residential/industrial use).

Maharashtra: Conversion tax is 2–5% of the land’s market value, plus a non-agricultural assessment tax.

Uttar Pradesh: Conversion charges vary by district and land use, often 5–10% of market value.

Andhra Pradesh: One-time conversion tax is 3% of the land’s market value.

Tamil Nadu: Conversion fee is 3% of the market value.

Bihar: 10% of the property value.

Delhi: Rs 14,000–25,000 per square meter, plus additional Floor Area Ratio (FAR) charges of Rs 3,000–8,000 per square meter in industrial zones.

Stamp Duty and LTCG Tax:

Post-conversion, NA land transactions attract stamp duty and registration fees, increasing the total costs of lands and projects. Sales of converted land are subject to 12.5% LTCG tax, further incentivising unaccounted cash deals to evade taxes.

Black Economy Drivers:

Unaccounted Cash Transactions: High conversion fees, stamp duty and LTCG tax encourage under-reporting of land values for conversion and subsequent sales.

Corruption in Approvals: The discretionary and complex approval process fosters corruption, with bribes often paid in unaccounted cash to expedite conversions, contributing to black money circulation that again ends up in real estate with resultant hoarding of land.

Benami Ownership: Converted land is often held under benami names to avoid taxes.

Trends:

Increasing Conversions: Rapid urbanisation and infrastructure projects (e.g., highways, smart cities) have driven agricultural land conversions, reducing cropland in peri-urban areas. Gujarat and Maharashtra have seen significant conversions for industrial corridors and Special Economic Zones (SEZs).

Policy Reforms: States like Gujarat (e-Dhara system), Karnataka (Bhoomi portal), and Andhra Pradesh (Dharani portal) have streamlined NA conversion through online platforms, reducing delays but not fully eliminating unaccounted cash bribes.

Environmental Concerns: Unregulated conversions threaten food security and ecosystems, with agricultural land (60.05% of India’s land area) facing pressure from development.

Agricultural to Non-Agricultural Land Conversion Data:

Comprehensive national-level data on agricultural to non-agricultural land conversions is limited due to state-specific reporting and varying definitions of land use. However, available studies and government reports provide insights:

2010–2030 Projections: A 2020 study estimates that agricultural land expansion (including conversions to cropland and pasture) will range from 15,605–30,672 km² by 2030, driven by food demand. However, conversions to non-agricultural uses (residential, commercial, industrial) are significant in peri-urban areas, though exact numbers are not uniformly tracked.

State-Level Data:

Gujarat: Between 2015 and 2020, approximately 1.2 lakh hectares of agricultural land (around 1% of total agricultural land in the state) were converted to non-agricultural use, primarily for industrial and residential purposes, facilitated by the Gujarat Land Revenue Code.

Maharashtra: From 2016 to 2021, around 1.5 lakh hectares (1% of total agricultural land) were converted, driven by urban expansion in cities like Mumbai and Pune, and industrial projects like SEZs.

Karnataka: The state reported 80,000–1 lakh hectares (1% of total agricultural land) converted annually from 2018 to 2023, with amendments to the Karnataka Land Revenue Act (2022) enabling faster conversions via self-declaration.

Uttar Pradesh: Approximately 2 lakh hectares were converted between 2014 and 2020, following amendments to the Zamindari Abolition and Land Reforms Act (2014), particularly for real estate and infrastructure projects.

Tamil Nadu: Around 50,000 hectares were converted from 2017 to 2022, mainly for residential and commercial development, as per the Tamil Nadu Change of Land Use Rules, 2017.

Challenges in Data: The lack of a centralised database and inconsistent reporting (e.g., some states report conversions in hectares, others in square meters) make precise national figures difficult. The Ministry of Statistics and Programme Implementation’s nine-fold land use classification covers 305 million hectares but does not explicitly track conversions.

Black Economy Drivers:

The high volume of conversions, especially in states like Uttar Pradesh and Maharashtra, creates opportunities for a huge black money circulation pool due to high conversion fees, stamp duty and LTCG tax, encouraging under-reporting and unaccounted cash deals.

Suggestions:

Subsuming Conversion Fees into GST: Include NA conversion fees in the unified GST framework with a low rate (e.g., 1%) to reduce costs and encourage transparency.

Digitised Approval Process: Implement a single-window, digital clearance system for NA conversions, integrated with land records, to reduce corruption and unaccounted cash bribes.

Centralised Data Tracking: Establish a national database under DILRMP to track agricultural to non-agricultural conversions, ensuring transparency and consistency.

Impact:

These measures would formalise conversions, reduce black money and support sustainable development while preserving agricultural land for food security.

5. Agricultural, Gauchar and Forest Land: Status and Trends:

The status and trends of agricultural, gauchar (pasture) and forest land in India are critical for understanding land use dynamics and their impact on the black economy.

Agricultural Land:

Status: As of 2021, agricultural land covered over 1.78 million sq. km, accounting for 60.05% of India’s land area, the highest net cropped area globally. It includes arable land, permanent crops and pastures, with 51.09% under cultivation as of 2018.

Trends: Cropland expanded from 92 million ha in 1880 to 140.1 million ha by 2010, driven by population growth and food demand. From 2010 to 2030, cropland expansion is projected to be moderate (15,605–30,672 km²) due to agricultural intensification and yield improvements (e.g., wheat yields increased from 0.8 tonnes/ha in 1948 to 6 tonnes/ha by 2000). Pressure on agricultural land persists due to rising food demand (projected at 300 million tonnes by 2025).

Black Economy Drivers: Agricultural land transactions, exempt from GST and subject to high stamp duty and LTCG tax, are prone to unaccounted cash transactions and under-reporting. Subsuming stamp duty into GST and reducing LTCG tax can formalise these transactions, reducing black money circulation.

Gauchar (Permanent Pastures Grazing Land):

Status: Gauchar land, primarily owned by village panchayats or the government, accounted for 3.92% of India’s land area in 2018, with a pasture area of 59,964 km² in 2010.

Trends: Demand for pasture land is projected to grow significantly by 2030 (119,823 km² to 152,913 km²), driven by livestock growth. Encroachment for cultivation has reduced grazing land, with stocking density rising from 63 LU/km² in 2010 to 93–148 LU/km² by 2030.

Black Economy Drivers: Gauchar land transactions, often informal due to community ownership, are susceptible to unaccounted cash deals. Land acquisition for projects may also be grounds for controversy and bribery at various levels.

Forest Land:

Status: As of 2023, India’s forest and tree cover spans 827,356.95 km² (25.17% of geographical area), with forest cover at 715,342.61 km² (21.76%) and tree cover at 112,014.34 km² (3.41%).

Trends: Forest area decreased from 89 million ha in 1880 to 63 million ha by 2010, but has stabilised since the 1980s due to conservation policies. India ranks third globally for annual net forest cover gain (2010–2020) and aims to restore 26 million ha of degraded land by 2030.

Black Economy Drivers: Forest land, under government control, is not prone to black money transactions but faces illegal encroachments. Digitisation and strict enforcement can prevent illicit land use changes and related economic fallouts.

6. Impact of Next-Gen Reforms and Economic Goals:

Eradicating black money and reforming taxation support India’s goal of surpassing a $5 trillion economy and achieving “Viksit Bharat” by 2047:

Ease of Doing Business:

A unified GST framework, digitised land records and a single-window clearance system for real estate and NA conversions would streamline processes, reduce corruption and attract investment (e.g., foreign investments in office spaces tripled to $10.3 billion during 2017–21).

Minimal taxation on commercial, industrial and converted NA land would encourage entrepreneurship, fostering a business-friendly environment.

Economic Growth:

Real estate’s multiplier effect on 300+ allied industries drives GDP growth. Formalising transactions through a unified GST, lower LTCG tax and transparent NA conversions brings taxable income into the formal economy, supporting infrastructure projects like the Rs 1.5 lakh crore interest-free loans to states and the Rs 1 lakh crore Urban Challenge Fund (Budget 2025). Lower taxes on commercial properties and converted NA land would boost investment, job creation and GDP, particularly through GCCs (projected to reach 2,100 by 2030).

Housing and Rural Development:

High stamp duty, GST, and LTCG tax inflate residential property costs. A municipal-style GST model for residences and lower capex taxes would enhance affordability, supporting PMAY’s target of 2 crore urban and 2.95 crore rural houses.

Minimal taxation on agricultural, gauchar, and NA land supports rural economies, ensuring food security and livelihoods for 41.49% of the workforce.

Global Competitiveness:

A transparent, low-tax real estate sector with a unified GST would attract NRIs and Real Estate Investment Trusts (REITs), which is projected to create a $19.65 billion opportunity.

Lower taxes on commercial properties, agricultural land and converted NA land would enhance India’s appeal for global businesses and sustainable development amid current global order changes.

Conclusion

The black economy in India’s real estate sector should be eliminated at this critical juncture when the government is mulling over next-gen economic reforms. Political, economic and national will should be displayed by taking certain bold measures.

Most of the real estate stakeholders themselves, as well as the consumers and citizens, want to operate legally, avoiding the pitfalls and risks of operating illegally. Some big stakeholders have already been operating completely legally.

A handful of “land and estate mafia” can't be allowed to thwart the march of the nation towards Viksit Bharat 2047.

Outlined measures for streamlining of real estate sector for ease of doing business would lead to unprecedented GDP growth to achieve India’s $5 trillion economy goal and beyond.