Tax sops announced to help developers, woo homebuyers

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November 13, 2020 6:45 AM

Liases Foras founder and MD Pankaj Kapoor explained that there are not too many regions where circle rates are higher than the prevailing market rate.

He further said while the move will benefit most projects, the limit of Rs 2 crore may make it not so attractive for a place like Mumbai or Delhi where prices are high.He further said while the move will benefit most projects, the limit of Rs 2 crore may make it not so attractive for a place like Mumbai or Delhi where prices are high.

The government on Thursday provided income tax relief to help builders clear their inventory as well as boost demand from homebuyers.

Simply put, now the differential limit between circle rate and market rate has been doubled to 20%, which means no income tax will be levied on the developers and the homebuyers for transactions made up to 20% below the circle rate. This limit was 10% till now.

This relief is from the date of announcement till June 30, 2021.

However, this benefit has been limited to houses with prices of up to Rs 2 crore and only for primary sales. Though developers welcomed the move, they also pointed out that by putting a price cap, a lot of inventory in central locations of Mumbai and National Capital Region will be out of the purview of this benefit.

At present, the homebuyers and developers have to pay tax if the differential between the circle rate and transaction value is more than 10% as that is seen as income under Section 43CA of the income tax Act. With this limit now being raised to 20% on properties up to Rs 2 crore, inventory in the mid-income segment (Rs 75 lakh to Rs 2 crore) is likely to get cleared.

According to ANAROCK Research, there are around 5.45 lakh unsold units across the top seven cities priced up to Rs 1.5 crore while another 49,290 are priced between Rs 1.5 crore and Rs 2.5 crore.

HDFC vice-chairman and CEO Keki Mistry told CNBC TV18 that this is a positive move as reckoner prices (circle rates) do not necessarily reflect the true value of the property in any particular location and many transactions happen lower than the ready reckoner price.

He further said while the move will benefit most projects, the limit of Rs 2 crore may make it not so attractive for a place like Mumbai or Delhi where prices are high. “While you will get properties for Rs 2 crore in the suburbs, in central and south Mumbai and in Delhi the properties of Rs 2 crore will be a rarity. Also, prices have fallen more in the high-end markets compared with the lower segments of the market,” he said.

Motilal Oswal Real Estate CEO Sharad Mittal said, with the softening of prices across markets, this price difference was in excess of 10% in some cases which kept some of the home buyers at bay. “While the move of increasing the differential from 10% to 20% will certainly help the real estate sector liquidate inventory as it brings more homebuyers to the fore, the impact will be limited as unsold inventory is highest in Mumbai and NCR markets where property values are higher than Rs 2 crore,” he said.

There is another reason that the measure may have limited scope. Liases Foras founder and MD Pankaj Kapoor explained that there are not too many regions where circle rates are higher than the prevailing market rate. “In most regions, the circle rates have been lower than the prevailing market rate. However, this provision provides a scope to the developers to reduce prices. This may also open up the scope of absorbing some black money in real estate,” he said.

Credai national president Satish Magar said while the industry had asked for a complete abandonment of 43CA, the increase to 20% is also a good enough move. “If someone wants to sell below the ready reckoner price, he has a margin of 20% to sell now. Being in an extraordinary situation if someone wants to liquidate their inventory, this is a good measure for that,” he said.

Sunteck Realty CMD Kamal Khetan said, “Property value in many parts of India has already gone down below the ready reckoner rates. The move to hike the differential to 20% will help developers offload the inventory and homebuyers to proactively buy properties without any tax liability.”

Naredco president (national) and Assocham president Niranjan Hiranandani said the cap of Rs 2 crore 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 said.

Meanwhile, partner at Nangia Andersen LLP Sandeep Jhunjhunwala pointed out that by limiting the total value of consideration for residential units to Rs 2 crore will give respite only to the middle income group feeling the heat of cash and liquidity crunch in the pandemic-ridden environment.

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