prpri Request to FM to extend applicability of safe harbour limit u/s 43CA & 56(2)(x) Request to FM to extend applicability of safe harbour limit u/s 43CA & 56(2)(x)

Open Letter to FM- Request to extend applicability of safe harbour limit u/s 43CA & 56(2)(x) of the Income Tax Act from 30th June 2021 to 31 March 2022

The worthy Finance Minister on 12th November, 2020 had announced relief to the real estate developers and the home buyers by increasing the safe harbour limit u/s 43CA & 56(2)(x) of the Income Tax Act from 10% to 20%. Thereby, the variation between the consideration and the circle rate value had been increased from 10% to 20% with effect from 12th November, 2020 to 30th June, 2021 only in respect of primary sale of residential units of value up to 2 crores. This concession was meant to enable the real estate developers to liquidate their unsold inventory at a rate substantially lower than the circle rate looking to the economic recession specially induced by the Covid- 19 scenario. It will not be out of place to mention that section 43CA of the Income Tax Act provides for deeming the circle rate value as the sales consideration for transfer of any real estate inventory in case the circle rate value exceeded the declared consideration. Similarly, Section 56(2)(x) of the Income Tax Act mandates that the difference between the circle rate value and the consideration is taxable in the hands of the purchasers. Earlier to this announcement, the safe harbor limit was 10%. However, the same was increased to 20% by the said benevolent announcement.

The Finance Act, 2021 reaffirmed these changes and mandated that the same would be applicable from 12th October, 2020 to 30th June, 2021 only. However, there was an unprecedented change in the economic, social and medical scenario of our country with the 2nd wave of the Covid-19 pandemic striking with its full venom and devouring much more people than the 1st phase last year. Therefore, the economy has receded substantially due to longer lockdowns and curfews imposed pan- India. Besides colossal tragic human loss, there was immense loss of business & employment. Although the precarious situation appears to have controlled to quite an extent but the economy is still in a very bad state. The very purpose of this benevolent concession could not be achieved because half of the appointed time was rendered nugatory due to the extraordinary circumstances due to the present Covid- 19 situation.

It is therefore requested that in order to achieve the objective of providing relief to the ailing real estate sector and looking to the poor financial purchasing power of the home-buyers, the said benevolent concession may be extended till March 31st, 2021 so that the very purpose of the said concession is fulfilled and both the ailing real estate sector & the distressed home-buyer is given a sigh of relief.

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July 2021