{"id":8702,"date":"2020-11-16T15:06:18","date_gmt":"2020-11-16T09:36:18","guid":{"rendered":"https:\/\/itatonline.org\/articles_new\/?p=8702"},"modified":"2020-11-16T15:06:18","modified_gmt":"2020-11-16T09:36:18","slug":"atmanirbhar-bharat-package-3-0-demand-booster-for-residential-real-estate-income-tax-relief-for-developers-home-buyers","status":"publish","type":"post","link":"https:\/\/itatonline.org\/articles_new\/atmanirbhar-bharat-package-3-0-demand-booster-for-residential-real-estate-income-tax-relief-for-developers-home-buyers\/","title":{"rendered":"Atmanirbhar Bharat Package 3.0: Demand Booster For Residential Real Estate \u2013 Income Tax Relief For Developers &#038; Home Buyers"},"content":{"rendered":"<p><img loading=\"lazy\" decoding=\"async\" src=\"https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Shashi-Bekal.jpg\" alt=\"Shashi Bekal\" width=\"129\" height=\"150\" class=\"alignleft size-full wp-image-6435\" srcset=\"https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Shashi-Bekal.jpg 129w, https:\/\/itatonline.org\/articles_new\/wp-content\/uploads\/Shashi-Bekal-100x116.jpg 100w\" sizes=\"auto, (max-width: 129px) 100vw, 129px\" \/><strong>Advocate Shashi Bekal has explained the salient features of the amendments proposed by the Atmanirbhar  Bharat Package 3.0 to the Income-tax Act, 1961 to provide relief to Real Estate Developers and home buyers. He has also considered whether the restrictive nature of the proposed incentive makes it ultra vires the Constitution<\/strong><\/p>\n<p align=\"center\">Abstract<\/p>\n<p><em>On <\/em><em>November   12, 2020<\/em><em>, The Hon&rsquo;ble Finance Minister Nirmala Sitaraman launched  the <a href=\"https:\/\/pib.gov.in\/PressReleasePage.aspx?PRID=1672321\" rel=\"noopener noreferrer\" target=\"_blank\">Atmanirbhar Bharat 3.0 package<\/a>. Several applaudable changes introduced. An  amendment to the Income tax regime inter aliachanges was proposed. The  amendment is with respect to the variance in real estate transaction on account  of a variance from stamp duty value of the property.The Article aims at  explaining the proposed amendment in the Income-tax Act, 1961 (<strong>Act<\/strong>) and  the chalks out a time line as to how the said provisions was inserted&amp; how  they have evolved over time. <\/em><\/p>\n<p><!--more--><\/p>\n<p>The  Article is divided into 4 Parts. <strong>Part I &ndash; Scheme of Income tax vis-&agrave;-vis  AtmaNirbhar Bharat package 3.0<\/strong>, explains the proposal made by the Hon&rsquo;ble  Finance Minister. <strong>Part II &ndash; Section 43CA of the Act<\/strong>, was similarly  introduced via Finance Act, 2013 for transactions where real estate was held as  stock in trade, and subsequent amendments. <strong>Part III &ndash; Section 56 (2) (x) of  the Act<\/strong> which was inserted via Finance Act 2017. <strong>Part IV&ndash;<em>Denouement, <\/em><\/strong>is  a concluding narrative, it criticizes the restrictive nature of the proposed  incentive for a home buyer thereby making the proposed amendment <em>ultra vires<\/em> the Constitution.<\/p>\n<p><iframe loading=\"lazy\" width=\"560\" height=\"315\" src=\"https:\/\/www.youtube.com\/embed\/ivHe0J00v34\" frameborder=\"0\" allow=\"accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture\" allowfullscreen><\/iframe><\/p>\n<p><strong>Part  I -Scheme of Income tax vis-&agrave;-vis AtmaNirbhar Bharat package 3.0<\/strong> <\/p>\n<p>On  November 12, 2020, The Union Minister  for Finance &amp; Corporate Affairs Smt. Nirmala Sitharaman has announced 12  key measures, as part of Government of India&rsquo;s stimulus to the economy, under  AatmaNirbhar Bharat 3.0. The net stimulus announced amounts to&nbsp;Rs&nbsp;2.65 Lakh  crore.&nbsp;<\/p>\n<p>One  of the key measures <em>inter alia <\/em>is with respect to Income-tax relief for  Developers &amp; Home Buyers. According to the measure, the differential  between circle rate and agreement value in real estate is taxed under the  scheme ofIncome tax under Section 43 CA of the Act and the has been increased  from <strong><u>10 per cent to 20 per cent<\/u><\/strong>. This is for a<strong><u>primary sale  of residential unitsup to <\/u><\/strong><strong><u>&#8377;<\/u><\/strong><strong><u> 2 Crore<\/u><\/strong> (<strong><u>from date of  announcement of this scheme, till June 30 2021<\/u><\/strong>).Consequential relief up  to 20% shall also be allowed to buyers of these units under section 56(2)(x) of  the Act for the said period.The Income Tax relief provides incentive to middle  class to buy homes.<\/p>\n<p>3  important points can be noted down from the measure, they are:<\/p>\n<ul>\n<li><span dir=\"ltr\">The threshold for triggering notional income  i.e. difference between Circle rate and Actual consideration, has been  increased from 10 percent to 20 percent.<\/span><\/li>\n<li><span dir=\"ltr\">The same is for a primary sale of residential  units up to Rs. 2 Crore.<\/span><\/li>\n<li><span dir=\"ltr\">The proposal is effective from <\/span>November   12, 2020  to June 30, 2021.<\/li>\n<\/ul>\n<blockquote class=\"twitter-tweet\">\n<p lang=\"en\" dir=\"ltr\">In a significant demand booster for the residential real estate sector, the govt has decided to make amendments in the Income Tax Act to help home-buyers as well as developers. <a href=\"https:\/\/t.co\/Fng2b5ny0B\">pic.twitter.com\/Fng2b5ny0B<\/a><\/p>\n<p>&mdash; NSitharamanOffice (@nsitharamanoffc) <a href=\"https:\/\/twitter.com\/nsitharamanoffc\/status\/1326807542463303680?ref_src=twsrc%5Etfw\">November 12, 2020<\/a><\/p><\/blockquote>\n<p> <script async src=\"https:\/\/platform.twitter.com\/widgets.js\" charset=\"utf-8\"><\/script><\/p>\n<p>Since  the measure mentions two sections viz. 43CA and 56(2)(x) of the Act. It is  imperative to understand these two sections.<\/p>\n<p><strong>Part  II &ndash; Section 43CA of the Act<\/strong><\/p>\n<p><strong>1.  Introduction<\/strong><\/p>\n<p>Section  50C of the Act i.e. when a capital asset, being immovable property, is  transferred for a consideration which is less than the value adopted, assessed  or assessable by any authority of a State Government for the purpose of payment  of stamp duty in respect of such transfer, then such value (stamp duty value)  is taken as full value of consideration under section 50C of the Act. This  provision did not apply to transfer of immovable property, held by the  transferor as stock-in-trade.<\/p>\n<p>Therefore,  the Finance Act, 2013, proposed to provide by inserting a new section 43CA that  where the consideration for the transfer of an asset (other than capital  asset), being land or building or both, is less than the stamp duty value, the  value so adopted or assessed or assessable shall be deemed to be the full value  of the consideration for the purposes of computing income under the head  &ldquo;Profits and gains of business of profession&rdquo;.<\/p>\n<p>Subsequently,  the seller of an immovable property, irrespective of the fact that the property  was held as an asset or as stock in trade was compared with the Stamp Duty  Valuation and the variance was subject to tax.<\/p>\n<p><strong>2.  Amendment vide Finance Act, 2018<\/strong><\/p>\n<p>Similar  to section 50C of the Act it was proposed via Finance Act, 2018 to provide that  no adjustments shall be made in a case where the variation between stamp duty  value and the sale consideration is not more than five percent of the sale  consideration.<\/p>\n<p><strong>3.  Amendment vide Finance Act, 2020<\/strong><\/p>\n<p>Finance  Act, 2020 increased the safe harbour limit of 5 percent to 10 per cent.<\/p>\n<p><strong>4.  Amendment vide <em>Atmanirbhar<\/em> package 3.0<\/strong><\/p>\n<p>The  Hon&rsquo;ble Finance Minister via press release dated November   12, 2020  has increased the safe harbour limit from 10 per cent to 20 per cent for  primary sale of residential units up to Rs. 2 crores. This is effective from  the date of the announcement to June 30, 2021. <\/p>\n<p>The  amendment has been made prospectively applicable from November   12, 2020  to June 30, 2021. Given the  sluggishness in the economy and the fact that the lockdown was imposed prior to  the beginning of the new Financial year, it would be advisable to  retrospectively apply the proposed law to earlier transactions.&nbsp; <\/p>\n<p>To  buttress this position, reference is drawn towards the decision of the Hon&rsquo;ble  Income tax Appellate Tribunal (Kolkata Bench) in the case of <strong><em>Chandra Prakash Jhunjhunwala v. DCIT  (2019) 201 TTJ 831 (Kol)(Trib) <\/em><\/strong>wherein it was held that though the 3rd Proviso  to section 50C of the Act, which provides a safe harbour of 5 per cent, applies  with effect from April 01, 2019, it must be interpreted to apply since the  insertion of section 50C of the Act (April 01, 2003) because it is curative and  removes an incongruity and avoids undue hardship to assesseess.<\/p>\n<p>Applying the same principle, the new safe harbour  limit of 20 percent&nbsp; maybe made  applicable to section 43CA of the Act with retrospective effect from April 01, 2014. <\/p>\n<p><strong>Part  III &ndash; Section 56 (2) (x) (b) of the Act<\/strong><\/p>\n<p><strong>1.  Erstwhile introduction as 56 (2)(vii) of the Act<\/strong><\/p>\n<p>Transfer  of immovable property without any consideration to an individual or HUF for an amount  exceeding Rs. 50,000\/- was brought within the scope of Income from other  sources vide Finance Act, 2009.<\/p>\n<p>However,  the same has limitations with respect to the nature of tax payer and it was  only applicable for transactions without consideration.<\/p>\n<p><strong>2.  Amendment vide Finance Act 2017<\/strong><\/p>\n<p>Since  the existing definition of property for the purpose of this section includes  immovable property, jewellery, shares, paintings,etc. These anti-abuse  provisions are currently applicable only in case of individual or HUF and firm or company  in certain cases.Therefore, receipt of sum of money or property without  consideration or for inadequate consideration does not attract theseanti-abuse  provisions in cases of other assessees.<\/p>\n<p>In  order to prevent the practice of receiving the sum of money or the property  without consideration or for inadequate consideration, it is proposed to insert  a new clause (x) in sub-section (2) of section 56 of the Act so as to provide  that receipt of the sum of money or the property by any person without  consideration or for inadequate consideration in excess of Rs. 50,000 shall be  chargeable to tax in the hands of the recipient under the head &quot;Income  from other sources&quot;.<\/p>\n<p>This  makes the inadequate consideration taxable in the hands of the buyer of the  property.<\/p>\n<p>Section  56 (2) (x) of the Act is triggered for an immovable property when&nbsp;any  person receives from any person or persons on or after April 1, 2017: without  consideration, the stamp duty value of which exceeds fifty thousand rupees, the  stamp duty value of such property or in case of a consideration, the stamp duty  value of such property as exceeds such consideration, if the amount of such  excess is more than 5 per cent of the consideration or Rs. 50,000 whichever is  higher.<\/p>\n<p><strong>3.  Amendment vide Finance Act, 2020<\/strong><\/p>\n<p>Finance  Act, 2020 increased the safe harbour limit of 5 percent to 10 per cent.<\/p>\n<p><strong>4.  Amendment vide <em>Atmanirbhar<\/em> package 3.0<\/strong><\/p>\n<p>The Hon&rsquo;ble Finance Minister via press release dated November 12, 2020 has  increased the safe harbour limit from 10 per cent to 20 per cent for primary  sale of residential units up to Rs. 2 crores as a consequential relief to  section 43C of the Act. This is effective from the date of the announcement to June 30, 2021. <\/p>\n<p>Therefore, the relief is not available to a buyer who  purchases a house\/ residential unit from a seller who held the same as a  capital asset. The language of the relief is clear with the use of the term  &ldquo;consequential relief&rdquo; and excluding section 50C of the Act. <\/p>\n<p><strong>Part IV&ndash;<em>Denouement<\/em><\/strong><\/p>\n<p>The Real estate sector has suffered a lot with the policies  of the government, from demonetization to GST; under the Scheme of Income tax  laws with Notional rent etc.<\/p>\n<p>The SDVs have been revised and currently the circle rates  are higher than the fair market value at various places. Buyers and Sellers  have been facing severe consequences.<\/p>\n<p>Thus, the present provisions of section&nbsp;43CA, 50C and  56 of the Act which aim at double taxing notional income,&nbsp;provide for safe  harbour of&nbsp;five per cent. On account of representations, the Finance Act,  2020 increased the same to 10 per cent. Referring to the observations made by  the Hon&rsquo;ble Tribunal in <strong><em>Chandra  Prakash Jhunjhunwala (Supra), <\/em><\/strong>it is advisable to issue such clarifications as the same would provide a  much-needed boost to the real estate sector.&nbsp; <\/p>\n<p>Albeit, the relief is appreciated as the relief said to be  with a view to provide an incentive to middle class to buy homes. However,  restricting the incentive for an individual by imposing a fetter i.e. only on  purchase of a residential property from a real estate developer is arbitrary,<em>ultra  vires<\/em> and violative of Article 14 of the Constitution of India. <\/p>\n<p>The possible argument that the same is to move the unsold  residential units of a real estate developer is deluded of a reasonable  classification. TheHon&rsquo;ble Supreme Court in the case of&nbsp;<strong><em>State of <\/em><\/strong><strong><em>West    Bengal<\/em><\/strong><strong><em> v. Anwar Ali Sarkar,  AIR 1952 SC 75<\/em><\/strong>has held that to pass the test of permissible  classification two conditions must be fulfilled. They are:<\/p>\n<ul>\n<li><span dir=\"ltr\">The classification must be  founded on an intelligible differentia which distinguishes those that are  grouped from others are left out of the group, and <\/span><\/li>\n<li><span dir=\"ltr\">The differentia must have a  rational relation to the object sought to be achieved by the Act.<\/span><\/li>\n<\/ul>\n<p>There is no intelligible differentia as to why a  middle-class home buyer is restricted from buying a residential unit from a 3rd  person or a second-hand seller. <\/p>\n<p>Further, given the impact of the pandemic on the economy,  there is a higher probability of a distress sale where the seller is in dire  need of funds. In such case, the buyer will not be able to avail any benefit  under the Income tax Act. This proposed amendment is restrictive and arbitrary  as the buyer is only benefitted when the purchase is made from a real estate  developer and not a third party. Unidentical treatment in an equal situation  amounts to inequality.<\/p>\n<p>A Writ Petition can be tried&nbsp; <a name=\"_GoBack\" id=\"_GoBack\"><\/a>challenging the  discriminatory, arbitrariness and restrictive nature of the Income tax relief  in not extending the tax incentive to a home buyer who is purchasing a home  from someone other than a real estate developer. Without prejudice, there is a  lack of reasonable classification in holding that the said relief is with a  view to aid real developers in clearing&nbsp;unsold&nbsp;inventory, as the same  amounts to inequality.<\/p>\n<table width=\"103%\" border=\"1\" cellpadding=\"5\" cellspacing=\"0\" bgcolor=\"#FFFFCC\">\n<tr>\n<td><strong>Disclaimer: <\/strong>The  contents of this document are solely for informational purpose. It does not  constitute professional advice or a formal recommendation. While due care has  been taken in preparing this document, the existence of mistakes and omissions  herein is not ruled out. Neither the author nor itatonline.org and its  affiliates accepts any liabilities for any loss or damage of any kind arising  out of any inaccurate or incomplete information in this document nor for any  actions taken in reliance thereon. No part of this document should be  distributed or copied (except for personal, non-commercial use) without  express written permission of itatonline.org<\/td>\n<\/tr>\n<\/table>\n","protected":false},"excerpt":{"rendered":"<p>Advocate Shashi Bekal has explained the salient features of the amendments proposed by the Atmanirbhar  Bharat Package 3.0 to the Income-tax Act, 1961 to provide relief to Real Estate Developers and home buyers. He has also considered whether the restrictive nature of the proposed incentive makes it ultra vires the Constitution<\/p>\n<div class=\"read-more\"><a href=\"https:\/\/itatonline.org\/articles_new\/atmanirbhar-bharat-package-3-0-demand-booster-for-residential-real-estate-income-tax-relief-for-developers-home-buyers\/\">Read more &#8250;<\/a><\/div>\n<p><!-- end of .read-more --><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":true,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[1],"tags":[],"class_list":["post-8702","post","type-post","status-publish","format-standard","hentry","category-articles"],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts\/8702","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/comments?post=8702"}],"version-history":[{"count":0,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/posts\/8702\/revisions"}],"wp:attachment":[{"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/media?parent=8702"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/categories?post=8702"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/itatonline.org\/articles_new\/wp-json\/wp\/v2\/tags?post=8702"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}