Housing finance companies welcome tax sops

Our Bureau Mumbai | Updated on November 12, 2020

But ₹2-crore cap may not help projects in metro cities, high-end properties

Amidst record low interest rates, those looking to buy a home have got another advantage with Finance Minister Nirmala Sitharaman’s package for the real estate sector, which would also help developers clear unsold inventory.

Housing finance companies, which have reported a surge in disbursements in recent months as many customers have capitalised on low interest rates, reduced stamp rates in some States along with the need for larger spaces due to the work-from- home situation, welcomed the latest announcement by the Finance Minister on Thursday and said it will be an added incentive for prospective home buyers.

“This is a welcome move. Many transactions take place at prices below the ready reckoner rate and the person has to pay tax on income which they have not received. The ready reckoner rates need to be revised more frequently to reflect the current market prices. Real estate prices have gone down in the last one year, particularly in the luxury segment but this is not reflected in the ready reckoner rates.,” said Keki Mistry, Vice-Chairman and CEO, Housing Development Finance Corporation (HDFC) Ltd.

He, however said the limit of ₹2 crore should have been higher. “It should have been higher as the correction in property prices is more for properties at the higher end,” he said.

Demand boosters

Prescribing demand boosters for residential real estate, the Finance Minister announced an increase in the differential from 10 per cent to 20 per cent (under section 43CA) till June 30, 2021 for only primary sale of residential units of value up to ₹2 crore.

“Consequential relief up to 20 per cent shall also be allowed to buyers of these units under section 56(2)(x) of IT Act for the said period,” she said.

Hardayal Prasad, MD and CEO – PNB Housing Finance, said the additional funding of ₹18,000 crore for PM Awaas Yojana-Urban will help the economy spring into action as it would boost businesses for allied industries such as steel, cement adding more employment opportunities.

“In the upcoming festive months, we may witness a continued surge in homebuyers’ interest and the additional tax relief makes such purchases even more attractive,” he said.

D Lakshminarayanan, Managing Director, Sundaram Home Finance, said this is the second time this year the rates have undergone a revision.

“While this in itself may not be a single large factor, if we look at the several good things going for the homebuyers, this one will certainly help them make a purchase decision. This is clearly targeted at the affordable and middle segments of buyers. For developers, this will be one more boost amongst the several government initiatives to push the stock,” he said.

Mahesh Misra, CEO, India Mortgage Guarantee Company, said low real estate prices and highly attractive interest rates had already created a favourable climate for home purchases. “The circle-rate linked income-tax benefit will add strong tailwinds,” he said.

Yashpal Gupta, MD & CEO, Repco Home Finance, termed it as a positive step in the right direction and said it will further accelerate the economic growth.

Niranjan Hiranandani, National President, NAREDCO and MD, Hiranandani Group, said the differential above 10 per cent between circle rates and agreement value translates into tax penalties under Section 43CA of the Income Tax Act. “This had been a major stumbling block for price rationalisation and would pinch, especially when it came to liquidating unsold inventory,” he noted.

Differential enhancement

According to Siddhartha Sanyal, Chief Economist and Head- Research, Bandhan Bank, the enhancement of the differential, as far as income tax relief on notional income is concerned, may help address the demand-supply imbalance in the industry to an extent.

(With inputs from Chennai, Delhi and Kolkata bureaus)

Published on November 12, 2020

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