- The Finance Ministry has increased the threshold limit for the difference between the transaction value and the circle rate to 20% from the current 10%.
- This means under a circle rate of ₹1.2 crore,
home buyers can buy a house of upto ₹1.5 crore rather than just ₹1.33 crore to avail the tax benefits. - This is the second time that the government has revised the limit — the first was in February when the differential was increased from 5% to 10%.
“There’s a lot of inventory, we’re told, in the real estate sector,” said Finance Minister Nirmala Sitharaman during today’s press conference on November 12.
The government has increased the threshold limit for the difference between the transaction value and the circle rate to 20% from the current 10%. This is the second revision of the limit done by India. The first was in February when the differential was increased from 5% to 10%.
What is circle rate and why should I care?
Right now, if there is a difference between the cost of the home and the circle rate set by the government. If that difference is more than 10%, any excess income is accounted for as the buyer’s income.
Since it comes into the income basket, it is also taxed at the same nominal rates.
But going forward, for homes under the price of ₹2 crore, this differential will be increased from 10% to 20% for next seven months, until 30 June 2021.
This means that if for instance, if the circle rate is ₹1.2 crore, the price of the home can’t be more ₹1.5 crore for buyers to remain within the 20% differential.
Had the limit been 10%, the choice of purchasing a home would be limited to around ₹1.33 crore.
However, it’s important to note that property prices, circle rates or even demand trends are not uniform across the country. So cities are witnessing better growth which allows for higher prices, while others are lagging behind and will have more to benefit from under the new limit.
What’s in it for the developers?
It's also a boon for developers, because they can now offer their property at lower rates than the prevailing circle rates.
This allows them to monetise any idle assets they haven’t been able to move yet. Clearing their existing inventory in turn allows developers to generate more liquidity to start up new projects or clear liabilities on existing ones.
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