Real estate sector might be taxed for holding stock-in-trade

If the tax comes into force, a real estate company that cannot sell an apartment after one year of receiving the occupation certificate will have to pay tax on the property.

The income tax department is reportedly set to levy a tax on unsold apartments that have been vacant for more than one year. 
 
If the tax comes into force, a real estate company that cannot sell an apartment after one year of receiving the occupation certificate (OC) will have to pay tax on the property, clarified Abhishek Gupta, leader of Corporate and International Tax at PwC. 
 
Niranjan Hiranandani, chairman, Hiranandani Developers, said: “A developer will feel disincentivised to build because the market is volatile and he might be liable to pay tax should he not be able to sell. The impact on unit launches might be significant in the months to come. In a sense, it defeats the government’s purpose of creating surplus housing.” Rather than increasing supply, such measures will lead to more cautious build-outs and prove counterproductive, argue realtors. 
 
There has been no meaningful price rise across the major cities over the past four years; so the question of hoarding to escalate prices seems like a goose chase, contend experts. They argue that developers are today genuinely unable to sell because of a lack of demand.
 
Developers may have to pay a tax equivalent to 30% of the rental value, assuming that the apartment or apartments in question can be rented out. Effectively it might translate to 10% of the property value over a period of time, Gupta of PwC estimated. Thus, on a projected price of Rs 6 crore, a developer could end up paying about Rs 60 lakh as tax. Those building luxury homes might end up paying crores in tax, as such units traditionally have a longer sales cycle.
 
At the end of September, as many as 450,000 units were unsold in the country, said Ashutosh Limaye, Research Head at JLL India, a realty consultant. Of these, approximately 45,000 units could be ready but unsold, which could potentially attract this tax.
 
Still, over the past few years, as developers have focused more on execution than new launches, the pressure of unsold inventory has somewhat reduced. A recent Fitch report said, “We expect unsold inventory to fall in 2018 as most developers will focus on completing their projects to comply with RERA”. 
 
With further steps being taken in the direction of introducing such a taxation, the industry is clearly nervous and upset. Buyer interest has been sporadic at best. Sales plummeted to historic lows with demonetisation a year back and, until August, they were still more than 20% lower than last November.
 
Without any fresh stimulus, the housing sector has had to deal with a series of disruptions. Implementation of RERA and GST has negatively impacted sales. “Except for tempering mortgage rates there has not been any meaningful trigger for a recovery to kick-start,” said Sharad Mittal, head of Motilal Oswal Real Estate Fund.
 
Source: Financial Express
 

Add new comment