NEW DELHI: Home prices could soften, if the revenue department asks builders to pay taxes on their unsold stock of ready houses as per a proposal that is under consideration.On the basis of a court order, which held that ready unsold flats held by builders as stockin-trade are liable to be taxed as "income from house property" even if they are not rented out, the income tax department last week suggested the finance ministry that this was one way of garnering more taxes.The ministry is considering the proposal, an official said on condition of anonymity. If the government clears the proposal, it will affect developers holding about 100,000 ready or close to be completed unsold properties in top eight cities across the country, according to data from property research firm Liases Foras.As per the proposal, these properties will attract tax computed on the basis of notional annual letting value. Builders are wary of the proposal since they will have to either sell these properties soon, perhaps by offering discounts, or get into expensive litigations. Such a tax will be a huge setback to the industry, builders say arguing that many of them are forced to hold stock simply because they are unable to sell in a sluggish market."This would be a double whammy and could force builders to shut shop," said Getamber Anand, managing director of ATS Infrastructure. "Most builders cannot hold stock because they have to service their debt but market forces today are such that sales are slow. It is not out of choice. Even reducing price cannot guarantee sales," he said.According to JC Sharma, managing director of Bangalore-based Sobha Developers, real estate developers are in the business of constructing and selling homes and in the process if some of them remain unsold, it is to be considered stock-in-trade and should not be taxed. In any case, builders say there is no consistency among the different circles of the income tax department, under which various developers fall, and this also creates confusion.A senior revenue department official, who did not wish to be named, said the suggestion was part of the plan that was on the agenda at the meeting of the chief commissioners of income tax with the finance minister Arun Jaitley late last month."The suggestion was one avenue to collect taxes," he said. Sunil Jain, partner at law firm J Sagar Associates said a move like this would weigh heavily on real estate companies."Some of them facing extreme liquidity issues could even have to sell their ready inventory at a discount to get out of the situation," he said. In a 2012 case between a builder and the tax authorities in the high court, the builder argued the apartments that it held could not be taxed according to the annual letting value method (ALV) as it was the owner of the property but for the purpose of business, to sell.The tax authorities said the company would have to pay tax based on ALV on the unsold flats as it was the owner of the flats and it did not matter whether the properties were rented out or not. The court ruled in favour of the income tax authorities. Such a move will also lead to an increase in tax litigation in the sector and add to the stress builders are under, said Maadhav Poddar , associate director at EY.Real estate companies show their finished apartments as stock-in-trade and income from these are shown as business income, as in most other businesses. In a rising market, several developers hold apartments to benefit from the price appreciation that will accrue a few years after the project is complete."But in the current market, most developers hold back the apartments not to hoard but because they are unable to sell. If the market conditions are not good and I cannot sell, why should I be taxed?" asked one south India-based builder, who did not want to be identified.The real estate market has been battered by a slow economy over the past two years, with home sales sliding drastically and putting pressure on the finances of builders. According to Liases Foras, the unsold inventory including properties that are under construction and completed has risen further from 734 million sq ft or about 734,000 apartments at the end of March to 765 million sq ft or about 760,000 apartments at the end of June."The sector has not been doing well in the last few years and it is possible there will be some bit of unsold finished stock with developers," said Poddar. According to the research firm, home sales in the April-June quarter slid 9 per cent in the top six cities.Only Bangalore was among the tier I cities that saw a 10 per cent growth in sales. The national capital region saw a 20 per cent drop in sales during the quarter, Chennai was down 18 per cent and Hyderabad 13 per cent while Mumbai saw a marginal drop of 2 per cent.