Experts said a reduction in the circle rate or a ready-to-reckoner rate for residential properties will lead to a reduction in tax expense for both buyers, as well as a boost to transactions in the real estate sector to sellers and with a reduction in interest rates so far this year will be good.
Union Finance Minister Nirmala Sitharaman on Thursday announced 12 measures in the third set of stimulus announced by the government aimed at boosting employment, credit, and manufacturing.
Among the measures announced was a 10% to 20% increase in the difference between the circle rate and agreement value, till 30th June 2021 for primary sales of residential units of value up to Rs. 2 Crore.
The circle rate or ready reckoner rate is the fixed rate decided by the government for Real Estate. Different parts of a district have different rates. Rates are a benchmark used by the government to calculate stamp duty for buyers and capital gains tax for sellers. Stamp duty and capital gains are made at the prevailing circle rate, even if the transaction is below that rate. Lowering the circle rate will reduce this outgo for both buyers as well as sellers.
Keki Mistry vice chairman at HDFC welcomed the government move but said the Rs 2 crore limit was too low.
Ready reckoner rates need to reflect current market prices. Real estate prices have gone down over the past year, particularly in the luxury segment and even the mid-segment in many locations in Mumbai but this is not reflected in the ready reckoner rates. Mistry said the limit should be higher because the improvement in property prices is higher for the property at the higher end.
The government said 12 measures were announced on Thursday amount to Rs 9 lakhs crore, with the total virus relief at around Rs 30 lakhs crore, or 15% of GDP.
State Bank of India Chairman Dinesh Kumar Khara said “The latest measures would ensure steps towards sustained economic recovery”
“The latest round of stimulus packages by the government is a bouquet of measures to encourage employment generation in the informal sector, expand the supply of loanable funds through the Credit Guarantee Scheme to support stressed areas, and a strong push for real estate, with tax incentives for homebuyers who could potentially get a price discovery in the real estate market. Overall, these measures will ensure that we take steps towards sustained economic recovery” Khara said.
Ramesh Nair, CEO, and country head, JLL India, said the announcement by the minister will help increase the speed of sales for developers, especially in the affordable and mid-priced segments.
Developers will now have an incentive in the form of this revised tax provision to pass on the benefit of lower market prices to buyers without reducing the additional tax liability under the preceding provisions.
“Mistry of HDFC said it would have been better if there were no limits or the limits were too high. He said, “Many transactions take place at prices below the ready reckoner rate and the person has to pay tax on income that they have not received. Even the buyer is charged higher stamp duty based on circle rates,” he said.