In a major boost to residential real estate, the government has provided tax relief to both homebuyers and realty developers by increasing the difference between ready reckoner or circle rates and market value for tax exemption.
The measure will help homebuyers and developers deal with speculations that are as low as 20% compared to ready reckoner rates. The government has decided to increase the difference from 10% to 20% under Section 43CA of the Income Tax Act. This will apply to the primary sale of residential properties up to Rs 2 crore by 30 June 2021.
Until now, any deal with a value of 10% or more compared to the current ready reckoner or circle rate would be an additional tax burden for both parties. Now the government has increased the gap to 20%. The move is expected to boost demand for residential real estate with relief to homebuyers and developers.
“This is a practical move and leads to the offloading of stuck Inventories due to the ongoing epidemic. In many micro-markets, the prices of residential properties have gone below the circle rates. With a difference of 20% between circle rates and market value, developers can sell the property and homebuyers can buy it without any tax liability under section 43CA in case of the developer and section 56 for the individual homebuyers under the Income Tax Act” Jaxay Shah, National Chairman, CREDAI.
Bodies of realty developers including CREDAI and NAREDCO have been suggesting this change for some time as property prices in many areas across the country are already submerged below ready reckoner rates, using stamp duty 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 will help realty developers clear their unsold stock. Anuj Puri, Chairman of Anarock Property Consultants, said, “There are about 5.45 lakhs unsold units in the top seven cities, priced up to Rs 1.5 crore, while there are an additional 49,290 units, priced up to Rs 1.5 crore to Rs 2.5 crore.
The government has also announced an additional outlay of Rs 18,000 crore for the Pradhan Mantri Awas Yojana (PMAY – Urban) to support its objective of Housing for All by 2022.
“Funding issues have been a major challenge for real estate” Niranjan Hiranandani, President, NAREDCO. “Additional amount of PM Awas Yojana – Rs 18,000 crore for urban will be the sparkle in this festive season. This is over Rs 8,000 already allocated 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 more than the Rs 8,000 crore already spent this year and is expected to help land 12 lakhs homes to be grounded and 18 lakhs homes to be completed. This will help reduce the housing gap in the country and at the same time act as an economic growth driver by creating more employment.