Reduce Circle Rates Or Revise Income Tax Requirements
The implementation challenges of the suggestion of reducing property prices by Union Minister of Commerce & Industry Piyush Goyal. Dr. Niranjan Hiranandani, President (Nation) NAREDCO & Assocham.
The Union Minister of Commerce & Industry Piyush Goyal has asked real estate developers to reduce prices and sell their inventory rather than wait for the market to bounce back. The Hon’ble Minister has made a right suggestion, it also echoes similar advice by Mr. Deepak Parekh, Chairman, HDFC as also other prominent personalities.
For those real estate developers who have borrowed huge amounts and have overleveraged, this is the practical solution: liquidate inventory, even if it means rationalizing price-points, and I concur with this as the ideal solution.
The problem in implementing this lies in provisions of the Income Tax Act, which in case the transaction is done at a selling price which is at a difference of 10 per cent or more of the circle rates/ ready reckoner (RR), results in ‘double taxation of the same amount’: first, the developer is taxed on ‘notional income’, and then the buyer is taxed on ‘discount earned being presumed to be an income’.
The way out, which Indian real estate has been mentioning in representations to authorities, is either reduction in circle rates/ ready reckoner (RR) rates; or removing Section 43CA and 56 (2)(x) of Income Tax Act, 1961. What the Hon’ble Ministers and leading personalities have said in terms of rationalize price points and sell is something that the provisions of the Income Tax Act block; and industry bodies like NAREDCO have been making representations about this since long.
Note: Over the past few years we have seen economic reforms and the resulting scenario has created a situation where builders have already reduced price points. So, what was possible despite the provisions of the Income Tax Act, has already been done. Where this has not happened, and prices have been stagnant since past few years, with inflation rate of 5 per cent a year, it actually works out to being a 20 per cent discount over the past four years.