In a move that could boost real estate demand, the government will relax income tax provisions to allow a 20 percent differential between sale price and circle rates, Finance Minister Nirmala Sitharaman said.
Circle rates, also known as ready-reckoner rates, are official area-wise prices set by state governments and are considered by Income-Tax Department to assume purchase prices. The government said it will allow a differential of 20 percent between actual prices and circle rates, up from 10 percent earlier.
With real estate prices stagnating for several years, and correcting in several places after the COVID-19 pandemic, builders have been forced to sell houses below the circle rates in many projects.
The relaxation of 20 percent will be applicable till June 30, 2021, for only primary sale of residential units of value up to Rs 2 crore.
The consequential relief up to 20 percent shall also be allowed to buyers of these units under section 56(2)(x) of IT Act for the said period.
The necessary amendment to the IT Act would be proposed in due course, FM Sitharaman said.
The measure will reduce hardships faced by both homebuyers and developers and help in clearing the unsold inventory, she added.
“For homebuyers, it is a clear added financial benefit to round off the existing offers and discounts. Additionally, the consequential relief up to 20 percent 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. For developers, this move will help clear unsold stock,” said Anuj Puri, Chairman – ANAROCK Property Consultants.
As per ANAROCK Research, there are approx. 5.45 lakh unsold units across the top 7 cities priced up to Rs 1.5 crore while another 49,290 units priced between Rs 1.5 crore to Rs 2.5 crore.
“Differential above 10 percent 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 rationalization,” said Dr. Niranjan Hiranandani, President, NAREDCO and Assocham.
This pinches, especially when it comes to liquidating unsold inventory. Industry bodies like NAREDCO have been pointing out the urgency with which this needs to be sorted out, and the Hon’ble Finance Minister, in a limited-period offer (up to 30 June 2021), has enhanced this differential from 10 to 20 percent. "This is welcome," Hiranandani added
"The FM also mentioned a cap on the flat value to be eligible for this - Rs. 2 crore. This will result in most projects in Metro Cities not being able to take advantage of this, 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,” he pointed out.
He went on to add that the ideal situation would have been one where this relaxation would be applicable to commercial real estate transactions as well. “Real estate as an industry and end-users, both would benefit if these two suggestions can be incorporated,” he concluded.
First Published: Nov 12, 2020 2:55 PM IST
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