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India Eases Tax Burden for Real Estate Sector During Pandemic

Posted on Nov. 16, 2020

India’s Ministry of Finance has announced that the government will reduce the tax compliance burden for real estate developers and home buyers by increasing the statutory safe harbor by 10 percentage points.

In a November 13 release, the Income Tax Department said that it will increase the safe harbor provisions under section 43CA of the Finance Act, 2020 from 10 percent to 20 percent, effective November 12 to June 30, 2021.

The tax relief measures, which are part of the Aatmanirbhar Bharat Package 3.0 announced November 12, are intended “to boost demand in the real estate sector and to enable the real estate developers to liquidate their unsold inventory at a rate substantially lower than the circle rate and giving benefit to the home buyers,” the release says.

The MOF announced measures specifically benefiting real estate developers and home buyers after Finance Secretary Ajay Bhushan Pandey said November 2 that the government is identifying sectors that need additional stimulus, including tourism and hospitality, and is considering additional pandemic relief.

“[The] Aatmanirbhar Bharat Package continues our efforts to help all sections of society. These initiatives will help [to create] jobs, alleviate stressed sectors, ensure liquidity, boost manufacturing, energize [the] real-estate sector, and support farmers,” Prime Minister Narendra Modi tweeted November 12.

The Income Tax Department said the deeming provisions under section 43CA are triggered only when the difference between the sale or purchase consideration and the circle rate is over the safe harbor. In the Finance Act 2018, the safe harbor was 5 percent, but to provide further taxpayer relief, the government increased the safe harbor to 10 percent in the Finance Act 2020. The 20 percent safe harbor only applies to the sale of residential units worth up to INR 20 million (approximately $268,000), the release says.

In May India announced a COVID-19 relief package worth INR 20 trillion, or approximately 10 percent of the country’s GDP. The package included a 25 percent reduction in tax deduction at source for nonsalaried specified payments until March 2021.

In August the MOF announced it would ease taxpayers’ goods and services tax compliance burden, providing an exemption for businesses with annual turnover of up to INR 4 million (about $53,600). It also said it would allow deferrals of GST payments, reduce interest rates, and waive or cap late fees at INR 500.

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