Income tax provisions in Budget 2020 that will benefit developers and home buyers

Benefit for developers of affordable housing subject satisfaction of certain conditions, under Section 80 IBA

The government has given various benefits to developers in the past, to boost the real estate sector. The income of developers from affordable housing projects is exempt from payment of taxes, subject to the satisfaction of certain conditions, under Section 80 IBA. One of the conditions to be satisfied for this purpose, is that the size of the plot on which the housing project is undertaken should not exceed 1,000 sq metres, if the same is situated in metro cities and its expanded areas, as well as Hyderabad and Bengaluru. For other places, the size of the plot can go up to 2,000 sq metres. Likewise, the carpet area of the house should not exceed 60 sq metres in the metro and mega cities and 90 sq metres in other places. The stamp duty valuation of the house in both the cases should not exceed Rs 45 lakhs. The benefit was to be available, if the approval for the project was obtained by March 31, 2020. Now, the period for obtaining the approval for the project has been extended by one more year, to boost the affordable housing sector. This will certainly help the sector and also in fulfilling the aim of the ‘Housing for All by 2022’ mission.

Relaxation in cases where the agreement value is lower than the circle rate

Presently, if the value at which the developer sells his flat to a buyer is lower than the stamp duty valuation by more than 5%, the difference of stamp duty value over the agreement value is taxed in the hands of the developer, as his business income. The budget proposes to increase the tolerance limit of the difference between stamp duty valuation and agreement value, from 5% to 10%. This proposal will help reduce some of the litigations in genuine cases, where the stamp duty valuation still remains high in spite of a correction in the prices of real estate.

Increase in concession when the agreement value is lower than the circle rate

As discussed in the case of developers, about the implications of the difference between the agreement value and stamp duty valuation, even for property transactions between an owner and a buyer, in case the stamp duty valuation of the property is higher than the value adopted in the agreement by more than 5%, the stamp duty valuation is deemed to be the sale consideration. Accordingly, the seller is taxed for the difference in the valuation. The buyer is also deemed to have received gifts to the extent of the difference between these two valuations, which is taxed as income from other sources. In many genuine cases, the stamp duty valuation is generally higher than the real market value, due to the recent corrections in the real estate sector. In order to grant relief in such cases and to avoid litigation, the finance minister has proposed to expand the tolerance limit from 5% to 10%. This is a welcome step and will mitigate hardships in genuine cases.

Additional benefit on home loan interest for affordable homes

Presently a person who does not own any residential house and buys a house under the affordable housing category, gets an additional benefit of Rs 1.5 lakhs of interest, under Section 80EEA, in addition to the regular deduction available under Section 24(b). This benefit was introduced last year and was applicable, only if the home loan was sanctioned between April 1, 2019 and March 31, 2020. The FM has proposed to extend this benefit, even if the home loan is sanctioned between April 1, 2020 and March 31, 2021.

Comments Section

  • - Mazhar Mohammad, Chartviewindia 04/01/2020Reply

    Intraday traders can look to go long if Nifty sustains above the 12,300 level for more than 30 minutes on Friday and look for a target of 12,390. Contrary to this, a strong close below 12,168 level may lead to weakness in Nifty

    • - Gaurav Ratnaparkhi, Sharekhan 04/01/2020Reply

      Nifty is now a stone’s throw away from its all-time high of 12,293. Structurally, it has climbed towards the upper end of the consolidation range i.e. 12,300. Once the 12,300 level taken out, it will march towards 12,350 and subsequently to 12,400, which is near the rising trendline and daily upper Bollinger Band. The 12,220-12,200 zone will act as immediate support

  • - Ashwin Patil, Senior Research Analyst 04/01/2020Reply

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    • - Chandan Taparia 04/01/2020Reply

      Nifty has been consolidating between 12,118 and 12,293 levels since last 11 sessions and now a decisive range breakout with followup action can drive the fresh leg of rally. The index has to continue to hold above 12,250 level to witness an up-move towards the 12,350-12,400 zone, while key support has shifted to 12,150 level

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