Finance Minister Nirmala Sitharaman on Thursday announced relaxations in income tax rules to allow sale of primary residential units of up to Rs 2 crore value below the circle rate.
Till now, only 10% difference between the circle rate and the agreement value was allowed.
Finance Minister Nirmala Sitharaman on Thursday announced relaxations in income tax rules to allow sale of primary residential units of up to Rs 2 crore value below the circle rate.
Till now, only 10% difference between the circle rate and the agreement value was allowed.
The government had provided relief to homebuyers during this year’s budget if the agreement value was up to 10% lower than the circle rate—or market value of properties decided by the government for taxation— from 5% previously.
To boost residential real estate sector, she said the differential has now been increased to 20% till June 30, 2021, for only primary sale of residential units of value up to Rs 2 crore. “This measure will reduce hardships faced by both home-buyers and developers and help in clearing the unsold inventory,” she said.
Even as stakeholders in the real estate industry welcomed the move, they expressed concerns over how far it can boost demand.
“Differential above 10% between circle rates and agreement value translates into tax penalties under Section 43CA of the Income Tax Act. This has been a major stumbling block for price rationalisation,” said Niranjan Hiranandani, president of Naredco. “This pinches, especially when it comes to liquidating unsold inventory.”
However, the Rs 2 crore-cap on property value set by the government will result in most metro cities being unable to take advantage of this move, he said. “It has consistently been pointed out by industry bodies that price points in metro cities need to be kept in mind while offering any such relaxation.”
Anuj Puri, chairman of Anarock Property Consultants, called it a good move.
“For homebuyers, it’s a clear added financial benefit to round off the existing offers and discounts,” Puri said. “Additionally, the consequential relief up to 20% to buyers of these units under Section 56(2)(x) of the IT Act for the said period will definitely boost demand, especially in the affordable and mid segments.”
According to Anarock Research, there are approximately 5.45 lakh unsold units across the top 7 cities priced up to Rs 1.5 crore, with another 49,290 units priced between Rs 1.5 crore and Rs 2.5 crore.
With the softening of prices across markets, this price difference was in excess of 10% in some cases which kept some of the home buyers at bay, said Sharad Mittal, chief executive officer of Motilal Oswal Real Estate. “While this will certainly help the real estate sector liquidate inventory as it brings more home buyers to the fore, the impact will be limited as unsold inventory is highest in Mumbai and NCR markets where properties values are higher than Rs 2 crore.”
“The relaxation provided under section 43 CA IT acts by increasing the differential threshold from 10% to 20% in circle rates and agreement value may help in some regions where the circle rates were higher than the prevailing market rate, which according to our study is not too many,” said Pankaj Kapoor, founder and managing director of Liases Foras.
“In most regions, the circle rates have been lower than the prevailing market rate. However, this provision provides a scope to the developers to reduce prices,” Kapoor said. “We also feel this may also open up the scope of absorbing some black money in real estate.”
Source: https://www.bloombergquint.com/politics/govt-announces-tax-relief-on-sale-of-housing-units
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