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Diwali sparkle for realty sector: Govt announces tax relief on sale of housing units during COVID-19 for homebuyers, builders

An additional outlay of Rs 18,000 crore for the Pradhan Mantri Awaas Yojana Urban has also been announced.

Finance Minister Nirmala Sitharaman

Finance Minister Nirmala Sitharaman

In an attempt to boost demand for the housing sector during the pandemic, Finance Minister Nirmala Sitharaman on November 12 announced relaxations in income tax rules to allow the sale of primary residential units of up to Rs 2 crore value below the circle rate.

An additional outlay of Rs 18,000 crore for the Pradhan Mantri Awaas Yojana Urban has also been announced. This is over and above the Rs 8000 crore already announced this year. “This will help 12 lakh houses to be grounded and 18 lakh houses to be completed,” she said.

Till date, only a 10 percent differential between the circle rate and the agreement value was allowed.

To boost the residential real estate sector, she said the differential has now been increased to 20 percent for the period up to June 30, 2021, for only primary sale of residential units of value up to Rs 2 crore.

“The income tax relief provides incentive to middle class to buy homes,” she said.


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"This measure will reduce the hardships faced by both homebuyers and developers and help in clearing the unsold inventory," she said.

The necessary amendments to the IT Act will be proposed in due course, she said.

The real estate sector has welcomed the announcements.

"The announcements are timely given that property values in a majority of India’s prime residential markets have largely remained stagnant in the past few years. Select developers in certain markets are providing price discounts to genuine homebuyers thereby leading to further rationalisation of prices. This is despite the fact that most of the developers are already operating on thin margins and have limited scope for price reduction," said Ramesh Nair, CEO & Country Head, JLL.

As of September end 2020, developers had a locked-in capital of nearly Rs 3.7 trillion with unsold inventory to the tune of more than 450,000 units at various stages of construction across the top 7 cities.

This announcement will help in accelerating the pace of sales for developers especially in the affordable and mid-priced segments, he said.

Shishir Baijal, Chairman & Managing Director, Knight Frank India said the prolonged COVID-19 crisis and anticipation for the vaccine have kept consumer demand on tenterhooks. Today’s stimulus measures will aid job creation and infrastructure development in the country. Recognition of real estate as a core sector, creating ancillary industry demand and employment, and enhanced Pradhan Mantri Awas Yojana – Urban allocation, will boost the housing demand in the country.

Besides, the increase in circle rate and transaction value threshold from 10 percent to 20 percent will remove a transaction hurdle and save tax thereby increasing the opportunity for unbridled property purchase activity, he said.

Providing Collateral Free Guaranteed Credit at capped capital cost for supporting stressed sectors (including real estate) will infuse significant liquidity in the sector and speed up completion of projects. This credit will also include borrowers who were delayed up to 30 days pre-COVID. A wide range of developers will be able to benefit from this without providing additional security, said Piyush Gupta, Managing Director, Capital Markets & Investment Services, Colliers International India.

Allowing the sale of residential units at prices lower (up to 20 percent lower from the circle rate) will incentivise developers to clear the unsold inventory and not worry about deemed taxation on the difference, he said.

Gaurav Karnik, Partner and National Leader – Real Estate, EY India, said the announcements are positive for the real estate sector- leeway of 20 percent between stamp duty circle rate and the prices at which the developer would like to sell the houses should help liquidate inventory held by developers today especially in places where circle rates have gone beyond the market rates.

"Where the circle rates are in line with the market rates it also provides an opportunity for developers to reduce the price and liquidate the inventory. Secondly, the increase in allocation to the PMAY Urban should result in a boost to construction activity along with increased demand for steel and cement and job opportunities,” he added.

The increase in the differential between circle rates and agreement value - from 10 percent to 20 percent (under Section 43CA) – is indeed a good move. This limited-period offer (up to 30 June 2021) will benefit both developers and homebuyers.

For homebuyers, it is a clear added financial benefit to round off the existing offers and discounts. Additionally, the consequential relief of 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 approximately 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 and Rs 2.5 crore.

The additional outlay of Rs 18,000 crore for PM Awas Yojana (PMAY – Urban) is another welcome step towards fulfilling its vision of Housing for All by 2022.

The additional outlay is over and above Rs 8,000 crore already spent this year. It will help 12 lakh houses to be grounded and 18 lakh houses to be completed. This will help bridge the housing gap in the country to a good extent and is simultaneously an excellent economic growth driver by creating more employment, he added.

Five years after the implementation of this ambitious scheme, Pradhan Mantri Awas Yojana (Urban) has made steady progress across states. As of August 2020, a total of 1.06 crore homes had already been sanctioned in the country, of which 33 percent or approximately 35.18 lakh homes are completed while another 66.23 lakh units have been grounded for construction.

Hemal Mehta, partner, Deloitte India said the government’s stimulus to builders across India by extending the limit from 10 to 20 percent between the actual sale price and the stamp duty value gives protection to both the buyer and seller in the primary sale from the deemed tax which both were liable to pay if the transaction price was lower;  due to the market situation, developers across the country were forced to sale their residential units at a lower price.

This benefit is only given to residential property and not commercial or retail, he added.

Real estate developers have also welcomed the announcements.

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 rationalisation, said Niranjan Hiranandani, President, NAREDCO and Assocham.

The FM also mentioned a cap on the flat value to be eligible for this - Rs. 2 crore. Most projects in metro cities may not be able to take advantage of the announcement as price points vary across metro cities, he said.

Jaxay Shah, national chairman of Credai, has said the move will lead to offloading inventories. “Due to COVID-19, the price of properties has gone down in some areas and are even below circle rates. Now with the up to 20 percent reduction below circle rates, the developer can sell the property and the home buyer can buy the property without having any liability u/s. 43CA in the case of developer and u/s. 56 for individual home buyer under the Income Tax Act,” he added.
Vandana Ramnani

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