Increase in tolerance limit up to 120 per cent (from 110 per cent) for real estate developers selling residential units meeting certain conditions: The said proposal to increase the tolerance limit from 110 per cent to 120 per cent was initially brought in as part of AatmaNirbhar Bharat Package 3.0 on 12 November 2020 for residential units meeting the specified conditions and the legislative amendments were to be brought in due course. This is a consequential amendment made under the provisions of section 43CA & 56(2)(x) to give effect to the said announcement by the Ministry of Finance.
As pe the said provision, in case of sale of any land or building or both as stock-in-trade (other than capital asset) by an assessee, the transaction is governed by Section 43CA of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’). The said section creates a deeming fiction whereby, the circle rate or the value adopted or assessed or assessable by any authority of a State Government for the purpose of payment of stamp duty would be deemed to be the full value of consideration for the purpose of computation of business income wherein the circle rate or stamp duty value exceeded 110 per cent of the consideration received or accrued as a result of the transfer of the property as per the sale agreement.
It is notable that this revision from 110 per cent to 120 per cent is applicable only with respect to sale of residential units costing up to Rs. 2 crore from 12 November 2020 till 30 June 2021. Therefore a flexibility has been brought in, which would be helpful to both the seller and buyer in better negotiating the price, in cases where the property cost could be lower than the circle rate or stamp duty value and without attracting any income-tax.
Moreover, a consequential relief of up to 20 per cent would also be provided to the buyers of such property u/s 56(2)(x) of the IT Act which previously used to treat the difference between the circle rate or market value and the consideration as referred in Section 43CA to be treated as income taxable in the hands of the buyer under the head ‘Income from Other Sources’.
Both the above amendments are part of the proposals of Finance Bill 2021. Extension of date of sanction of loan for affordable residential house property Section 80EEA of the IT Act, provides for an additional deduction of up to Rs. 150,000 in respect of interest on housing loan sanctioned by a bank or housing finance company during the period 1st April 2019 to 31st March 2021. There are further conditions that the stamp duty value of residential house property does not exceed Rs. 45 lakh and the assessee does not own any residential house property on the date of sanction of loan. In order to help such first-time home buyers, the provision of section 80EEA is proposed to extend the date for sanction of loan from 31st March 2021 to 31st March 2022. This is a welcome measure and would help in ensuring ‘housing for all’ and also boost the demand for affordable housing. Section 80IBA which provides exemption to developers of affordable housing projects the period of approval extended from 31 March 2021 to 31 March 2022 In continuation of the measures to boost affordable housing the period for obtaining the project approval has been extended by one year up to 31 March 2022. The other conditions for project eligibility such as construction to be completed within five years from the date of approval shall still continue. Section 80IBA which provides exemption to developers of affordable housing projects has been extended to notified rental housing projects As a measure to improve the standard of living and to make affordable rental housing available to the migrant labours, it is proposed to provide for 100 per cent deductions of the profits and gains derived from the business of developing and building affordable rental housing project. One of the conditions is that the rental housing project should be approved by 31 March 2022. The eligible rental housing projects would be notified by the central government in the official gazette.
(The writer is founder of RSM India, the 6th largest accounting, tax & consulting group in India)