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Affordable, mid-priced housing gets a fillip; real estate sector cheers tax relief in Stimulus 3.0

Realtors hope to see accelerated pace of sale in affordable and mid-segment houses after the government's move to increase the differential rate between circle rate and agreement value to up to 20 per cent

Rukmini Rao | November 13, 2020 | Updated 10:27 IST
Affordable, mid-priced housing gets a fillip; real estate sector cheers tax relief in Stimulus 3.0

Along with a slew of other announcements, the government today announced income tax relief for developers and homebuyers to increase the differential rate between circle rate and agreement value to up to 20 per cent which is currently 10 per cent. The benefit of the increased differential rate would be applicable from November 12 to June 30, 2021, for only primary sale of residential units of value up to Rs 2 crore.

"Consequential relief of up to 20 per cent shall also be allowed to buyers of these units under Section 56(2)(x) of IT Act or the said period," said Finance Minister Niramala Sitharaman. Real estate companies are now hoping this move could help accelerate sales even as property value in prime residentials markets have largely remained stagnated.

Niranjan Hiranandani, President (National) NAREDCO, says that the sector has been pointing out this pressing issue. "Differential above 10 per cent 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," he said. However pointed out that the cap of Rs 2 crore would mean that projects in metro cities may not be eligible to take the benefit of this move.

With the value of property value in many parts of India having already gone down below the ready reckoner rates, Kamal Khetan, Chairman and Managing Director, Sunteck Realty says, "The move to hike the differential to 20 per cent will help developers to offload the inventory and homebuyers to proactively buy properties without any tax liability."

According to JLL India, as of September-end 2020, developers had a locked in capital of nearly Rs 3.7 lakh crore with unsold inventory to the tune of more than 450,000 units at various stages of construction across the top 7 cities.

"This comes as a significant benefit for both buyers and sellers as it will reduce and rationalise tax outgo to a great extent. Developers will now have the incentive in the form of this revised tax provision to pass on the benefit of lower market prices to buyers without incurring additional tax liability under the erstwhile provisions," said Ramesh Nair, CEO and Country head, JLL India.

With most of the developers already operating businesses on thin margins with limited scope for price reduction, this move could help in accelerating sales for developers  selling homes in the affordable and mid-priced market segments.

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