The measure would help homebuyers and developers deal in stuck properties that are valued up to 20% lower than the ready reckoner rates. The government has decided to increase the differential from current 10% to 20% under section 43CA of Income Tax Act.
This will be applicable on primary sale of residential properties valued up to Rs 2 crore until 30th June 2021.
Until now, any deal with value lower than the existing ready reckoner or circle rate by 10% or more, would result in additional tax burden for both the parties. Now the government has increased the differential to 20%.
The move is expected to boost the demand for residential real estate further with relief to homebuyers and developers.
“It is a practical move and leads to offloading the stuck inventories due to the ongoing pandemic. Prices of residential properties in many micro-markets have gone below circle rates. With up to 20% differential between circle rates and market price, developers can sell the property and the homebuyer can buy that without incurring any tax liability under section 43CA in case of developer and section 56 for individual homebuyer under the Income Tax Act,” said Jaxay Shah, National Chairman, CREDAI.
Realty developers’ bodies including CREDAI and NAREDCO have been suggesting this change for sometime as property values in many localities across the country have already dipped below ready reckoner rates that are used to calculate the stamp duty and other taxes to be paid to the government authorities.
They had also reinforced this in their response to Commerce Minister Piyush Goyal’s call earlier this year to builders to lower home prices to clear inventories.
“The move is expected to help realty developers clear their unsold stock. There are around 5.45 lakh unsold units across the top seven cities priced up to Rs 1.5 crore, while additional 49,290 units priced between Rs 1.5 crore to Rs 2.5 crore,” said Anuj Puri, Chairman, Anarock Property Consultants.
The government has also announced an additional outlay of Rs 18,000 crore for Prime Minister Awas Yojana (PMAY – Urban) to support its objective of Housing for All by 2022.
“Funding issues have been a major challenge for real estate,” said Niranjan Hiranandani, President, NAREDCO. “Additional funding of Rs. 18,000 crore for PM Awaas Yojana-Urban will add to the sparkle this festive season. This is over and above the Rs 8,000 already allotted this year, and will translate into more homes for home seekers, more employment opportunities as also good business for suppliers and industries peripheral to real estate and construction.”
The additional outlay is over and above Rs 8,000 crore already spent this year and is expected to help 12 lakh houses to be grounded and 18 lakh houses to be completed. This will help minimize the housing gap in the country and simultaneously act as an economic growth driver by generating more employment.