Finance Minister P Chidambaram on Wednesday called upon states to reduce tax rates on transfer of property to enhance their tax revenue from this sector.

"I think we must look at taxes on transfer of property in India, reduce the tax rates, reduce the transaction cost and therefore that is a big source of revenue," Chidambaram said at a USAID function in New Delhi.

He said a large number of transactions in property goes untaxed since the tax rates and the transaction costs are so high.

"As my friend just said there will never be a real estate asset bubble in India because the (revenue from) taxes are so depressed to the real price," he added.

However, tax on property is the one area where states have put some efforts, though not entirely satisfactory, he said.

He said effectively states' taxing powers are limited.

"There are two kinds of taxes (at the states levels) -- one the sales tax and the other taxes on liquor and related products. Although the other tax, that is tax on agricultural income is available to states... it is hardly likely that any state will tax the agricultural income," he said.

He asked states to look at alternative tax policies, make revenue choices and enhance the revenue mobilisation.