The government on Friday said it would amend the income-tax law to exempt real-estate developers and homebuyers from tax liability if the actual consideration for an asset is lower than the stamp duty value (circle rate) by not more than 20%.
The changes would be applicable only to primary sale of residential properties not exceeding Rs 2 crore in value.
Without the relaxation, the developer selling the flat at a price lower than the circle rate would be liable to pay tax on profits calculated on the basis that the flat/home was sold at the circle rate.
Similarly, the buyer would be taxed on differential amount between the circle rate and the actual consideration under section 56(2)X — which is an anti-evasion provision and brings to tax consideration that deviates from fair market value.
Till 2018, section 43CA of the Income Tax Act, 1961, provided for deeming of the stamp duty value (circle rate) as sale consideration for transfer of real estate inventory in the case the circle rate exceeded the declared consideration. Consequently, the stamp duty value was deemed as purchase consideration in case of buyer under section 56(2)(x) of the Act.
“In order to provide relief to real estate developers and buyers, the Finance Act, 2018, provided a safe harbour of 5%. Accordingly, these deeming provisions triggered only where the difference between the sale/purchase consideration and the circle rate was more than 5%,” the government said.
Further, it added that Finance Act, 2020 increased this safe harbour from 5% to 10%. Therefore, currently, the circle rate is deemed to be the sale/purchase consideration for real estate developers and buyers only where the variation between the agreement value and the circle rate is more than 10%.
In order to boost demand in the real estate sector and to enable the developers to liquidate their unsold inventory at a rate substantially lower than the circle rate and giving benefit to the homebuyers, it has been decided to further increase the safe harbour from 10% to 20% under section 43CA of the Act for the period from November 12 to June 30, the government said.
“Consequential relief by increasing the safe harbour from 10% to 20% shall also be allowed to buyers of these residential units under section 56(2)(x) of the Act for the said period. Therefore, for these transactions, circle rate shall be deemed as sale/purchase,” it added.
