Opinion

Safe-harbour for realty

Mohan R Lavi | Updated on November 24, 2020

Profits/gains from sale of property made less taxing

Over the last few months, the government has announced an eclectic set of measures to enable different sectors of the economy tide over the impact of the Covid-19 pandemic. Initially, small and medium enterprises were offered easier loans. Later, ‘Make in India’ 2.0 was announced. And, more recently, as a part of Atmanirbhar 3.0, the Finance Minister announced a slew of measures including some top-ups to the Emergency Credit Guarantee Scheme for Stressed Sectors ( ECLGS).

The numbers are so huge that the first reaction of almost everyone would be where will all this money come from, One can only hope that the even larger numbers reported in the Consolidated Fund of India provide some room for the government to fund these numbers.

Section 43CA

Covid-19 has adversely impacted the housing sector. While there has been no major drop in sale values or rentals, there is bound to be some change in prices due to the large unsold inventory/large number of leased properties. Atmanirbhar 3.0 has decided to do something about this by focussing on Section 43CA of the Income Tax Act.

This Section states that where the consideration received or accruing as a result of the transfer by an assessee of an asset, being land or building or both, is less than the value adopted or assessed or assessable by any authority of a State government for the purpose of payment of stamp duty in respect of such transfer, the value so adopted or assessed or assessable shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration received or accruing as a result of such transfer.

The Section also provides a safe-harbour limit of 5 per cent — where the value adopted or assessed or assessable by the authority for the purpose of payment of stamp duty does not exceed 110 per cent of the consideration received or accruing as a result of the transfer, the consideration so received or accruing as a result of the transfer shall, for the purposes of computing profits and gains from transfer of such asset, be deemed to be the full value of the consideration.

Atmanirbhar 3.0 has further increased the safe-harbour limit to 120 per cent.

More transparency

The government is making property transactions more transparent to reduce the black money from these transactions as much as possible. Since the black money is getting out of property transactions slowly, the prices have also been stabilising over the last few years. In the past few years, stamp duty values have been increased to the level of market price and there is lesser gap now.

Hence, there is little chance of evading stamp duty nowadays. It is expected that this move will help builders clear their existing inventory in soft market conditions, and hence tide over their working capital issues.

Section 43CA also permits the value as on the date of the agreement to be considered in case it is different from the date of registration.

The only condition to be met to get this benefit of 120 per cent is that either the consideration or a part of it has to be received by way of account-payee cheque/bank draft/electronic transfer. With the introduction of a TDS of 1 per cent on property transactions, the government has plugged the percentage of black money that is being used for real estate transactions. While the menace of black money has not been eliminated, it now constitutes a negligible part of the transaction value.

The increase in the safe-harbour limit to 120 per cent should further benefit the sector. The government has not given too many GST concessions to the real estate sector — they would do well to give a reduction in rates for two years.

The writer is a chartered accountant

Published on November 24, 2020

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