The Government of India is making efforts to increase consumer spending. The country is witnessing a rise in expenditures during the festive season. As the economy is experiencing a V-shaped recovery, the government has boosted the real estate sector. The reforms in the real estate sector have been introduced to promote the sale of properties. Experts consider this the best time to buy a house, especially with lower home loan interest rates and stamp duty.
The financial benefits have been introduced in the Atmanirbhar Bharat 3.0 Package*. The Finance Minister has also announced an additional outlay of ₹18,000 crores for an urban housing scheme** so that it leads to the completion of real estate projects, job creation, and economic development. It is time for the homebuyers to gain financial benefits in the form of discounted properties, lower interest rates on housing loans, change in differential rates, and tax benefits.
Win-Win situation for Developers and Homebuyers
The reforms in the real estate sector during the pandemic are a welcome move as it was a much-needed relief in the real estate industry. The RBI’s decision to cut the Repo rates meant that the home loan lending rates were the lowest in the last two decades. With these reforms, the developers can get faster conversions and clear up the unsold inventory. Similarly, it offers affordability, income tax gains, lower stamp duty, and interest rates for homebuyers.
Benefits for Homebuyers under the Atmanirbhar Bharat 3.0 Package
1. Change in Differential Rates –
The Government of India is focusing on increasing consumer spending to boost the economy post the pandemic. The Finance Minister, Nirmala Sitharaman, did announce a stimulus package of ₹2.65 lakh crore under Atmanirbhar Bharat 3.0. The package had much to cheer for the homebuyers. As per the latest package, the central government has increased the differential rate between the agreement value and the circle rate from 10% to 20% to sell residential units up to ₹2 crores. This move will be applicable till 30th June 2021, which would be very beneficial for both homebuyers and builders.
Circle rate is the minimum rate approved by the government at which a property should be registered, and then the buyers pay the stamp duty on that value. The circle rate varies from circle to circle, i.e., area-wise. Even if the property rate is lower than the circle rate, the buyer has to pay the stamp duty on that rate. It is used to calculate income tax payable on capital gains concerning with sale/purchase of houses. These rules have been made to ensure that individuals do not get a chance to evade taxes. In the pre-Covid-19 times, the government allowed a concession of 10% below the circle rate, but now to boost the demand, the government offers a discount of 20%.
The objective of the announcement was to boost the demand among affordable buyers in mid segments. With the change in differential rate, the government is offering a financial benefit to the homebuyers. Even for the developers, it is good news as they can clear their unsold homes.
2. Updates in PMAY–
The Pradhan Mantri Awas Yojna (PMAY) has made steady progress since its launch. With an additional outlay of ₹18,000 crores in PMAY, “housing for all” can be achieved by 2022. Under this scheme, homebuyers can buy affordable homes in different states of India. The scheme focuses on bridging the housing gap in the country. As per the latest data of August 2020, a total of 1 crore homes have already been allotted in the country. More homes will lead to more employment opportunities.
3. Lower Stamp duty–
Higher stamp duty has always been discouraging for the buyers. It is challenging for developers to find buyers with lower property rates due to high stamp duty. Now buyers can purchase a property under Section 56(2)(x) of the IT Act*** to showing relief of up to 20%.
4. Tax Benefits–
Tax benefits have always been lucrative for homebuyers. First-time home buyers are already getting the benefit of interest deduction that lowers their tax liability. Another tax benefit is related to the difference in circle rate. For example, consider you are buying a home for ₹70 lakh; however, as per the circle rate, the property’s rate is deemed to be ₹80 lakh. As per the Income-tax rule, if the quality exceeds 10%, then the developer would calculate the profit from the value of ₹80 lakh.
The difference of ₹10 lakh will be shown as “Income from other sources” and pay the tax accordingly. The fresh announcement says that the difference has been increased up to 20% to avail of the tax benefits. Now this difference of ₹10 lakh will not be shown as an income of the homebuyer.
The reforms of the package focus on the bigger picture. The much-needed reforms in the infrastructure and real estate sector would surely benefit the homebuyers and developers. Both the circle rate and tax benefits cater to the need of buyers and developers. The above-given reforms have been successful in persuading buyers to invest in a home. With a rise in work from home jobs, individuals are focusing on buying their own homes and investing for the long term. The COVID-19 pandemic has taught individuals the importance of having a home. Hence, first-time homebuyers are more inclined to purchase a new home in the present scenario.
The bigger picture focuses on a rise in consumer spending as with the home, you also buy furniture, home furnishing items, appliances, etc. Therefore, all the factors combined lead to the economic development of the country.
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