Stimulus for construction, infrastructure and real estate

01 Dec 2020

On November 12, Finance Minister Nirmala Sitharaman announced 12 measures as part of the COVID-19 stimulus package and unveiled a new scheme called Atmanirbhar Bharat Rozgar. COVID-19 has hampered the growth of each sector in the economy and has impacted the livelihood of millions of people. Against this backdrop, the Finance Minister announced various incentives to rescue the economy from a historic contraction caused by the Coronavirus pandemic. 

The moves are part of the Government's broader Atmanirbhar Bharat series of steps, aimed at bolstering a rebound of the ailing economy. An additional outlay of Rs.180 billion was announced for PM Awas Yojana – Urban (PMAY-U). This money will be provided over the budget estimates for 2020-21 for PMAY-U through additional allocation and extra budgetary resources. This step is expected to help 1.2 million houses to be grounded and 1.8 million to be completed. Reduction of performance security to 3 per cent from 5-10 per cent and replacement of earnest money deposit (EMD) by bid security declaration is expected to provide relief to contractors by reducing locking up of capital and cost of bank guarantee.

To reduce the hardships faced by both homebuyers and developers and help clear unsold inventory, Sitharaman announced an increase in the differential from 10 per cent to 20 per cent—under Section 43CA of the Income Tax (IT) Act—for the period from the date of the announcement to 30 June 2021 for primary sale of residential units of value up to Rs.20 mn. Developer Niranjan Hiranandani, President (National), NAREDCO and Assocham, tells CW, “A differential above 10 per cent between circle rates and agreement value translates into tax penalties under Section 43CA of the IT Act. This has been a major stumbling block for price rationalisation. 

The Hon’ble Finance Minister, in a limited-period offer, has enhanced this differential from 10 to 20 per cent. This is welcome.”

Other real-estate players applauding the announcement include Reeza Sebastian Karimpanal, President, Residential Business, Embassy Group, who calls it a win-win situation and says, “This new initiative will also help accelerate the decision-making of the process of buying a home and, in turn, reduce the overall inventory in the affordable and mid-segment market.” And Shishir Baijal, Chairman & Managing Director, Knight Frank India, says, “Recognition of real estate as a core sector, creating ancillary industry demand and employment, and enhanced PMAY-U allocation will boost housing demand in the country. Besides, the increase in the circle rate and transaction value threshold from 10 per cent to 20 per cent will remove a transaction hurdle and save tax, thereby increasing the opportunity for unbridled property purchase activity.”

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