Revenue Minister signing the agreement with Moolampilly evictees

The new Kerala Government led by Oommen Chandy has quickly concluded a deal for evictees from Moolampilly and disbursed the compensation. (The eviction was for the Vallarpadam Container Terminal)

However, the real beneficiaries of the deal could be big traders and politicians who would have to be evicted for Kochi Metro Rail and other projects.

One thing that Mr. Chandy had accepted without any argument during the negotiations is that the compensation should be tax free.  Well, even before the matter was settled, the Principal Secretary (Revenue) had written to the Centre urging that the compensation should be exempted from capital gains tax under the Income Tax Act.

One thing that the government had not clarified is whether this would be a concession for the Moolampilly evictees alone. Apparently, it is not.  It becomes a precedent and benefit would be available to future evictees also.  It is not yet clear whether the Central Board of Direct Taxes or Finance Ministry would allow a specific exemption or a general exemption applicable to all evictees.

If it is going to be general, the first beneficiaries would be the politicians and other bigwigs who purchase land with prior knowledge of the development project to be drawn up by the government for the area. Such purchases have become common as it is usually the politicians who get the first winds of development proposals. When capital appreciation occurs, it is such buyers who would have to pay hefty sums for capital appreciation.

The poor people like that of Moolampilly, who had been holding their land for years, would not have to pay much in terms of capital gains— they can discount their earnings against cost of inflation index. Moreover, they would have no liability if they are purchasing property elsewhere using the amount. On the other hand, those diverting the money for non-capital expenditure would have to pay the tax. So, why did government want to fast-track this exemption?

Note that several of our representatives in Assembly have not been filing income tax returns.  If the IT Department detects large scale payments upon land acquisition, we know what could be the problem.  In places like Kochi, owners who have to surrender land for the Metro project could save millions in tax, as land prices in these areas were going up like anything.  And the government is promising market value for the land!