Affordable housing gets shot in the arm

By Suresh Surana A host of measures have been proposed in the Finance Bill 2021, which is targeted to provide relief to both the affordable house buyers as well as the developers of affordable housing projects. These specific and targeted measures would help to boost the activity in the real estate sector.
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’.