Black money investment in real estate: Tax penalty raised severalfold

Black money, or undisclosed income, can still be invested in the real estate sector, but the tax penalty for doing so has been increased severalfold in the budget for the upcoming fiscal year.

Currently, untaxed money can be legalised by paying Tk 6,000 per square metre for a building or apartment of over 200 square metre plinth area located in Gulshan Model Town, Banani, Baridhara, Motijheel Commercial Area, and Dilkusha Commercial Area in Dhaka.

But, in the coming fiscal year, the amount will be raised to Tk 2,000 per square foot for buildings and flats - meaning the amount will go up to Tk 21,530 per square metre - a 258.83 percent increase.

In case of buildings constructed up to 200 square metre plinth area, a tax will have to be paid of Tk 900 per square foot. That means it will cost Tk 9,688.50.

Finance Advisor Salehuddin Ahmed announced the proposed budget for the 2025-26 fiscal year in a speech on Monday. The Finance Bill was also passed, but the changes in the Income Tax Act will take effect from July.

Currently, black money can also be legalised by investing Tk 6,000 per square meter in buildings or apartments with a plinth area of not more than 200 square metres in the Gulshan Model Town, Banani, Baridhara, Motijheel Commercial Area and Dilkusha Commercial Area in Dhaka.

In order to purchase such flats, buildings or apartments using black money will mean spending Tk 1,800 per square foot in the coming fiscal year. This means the tax has been increased by up to 384 percent and could go up to Tk 19,377 per square metre.

Thus, the tax rate has been increased in each case, depending on the size of the apartment or building.

Since the interim government took office, it has repeatedly stated that they will not allow black money or undeclared income to be whitened through investments.

In September, they abolished the opportunity to launder black money. However, since they did not mention the abolition of the opportunity to launder through investment in the housing sector, i.e. flats or buildings, this provision remained in place.

The government has now decided to hike the tax rate substantially, but has not actually closed the loophole.