Fringe areas in Kolkata will benefit from gap between rates

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Arun Jaitley, the Union Finance Minister, made several homebuyers happy by declaring its allowance of 5% on the difference between the rates at which transactions happen and the circle rate that is fixed by the Government. This will lead to benefits for a major chunk of real estate developers and homebuyers in Kolkata who would otherwise have to shell out income tax as per Section 43 CA on the differential amount. Premium apartments in complexes across Kolkata which are built by noted real estate developers usually come with higher prices as compared to 4/5 storied buildings which are developed by local builders in other plots in the same locality.

However, since circle rates are fixed by the higher prices, buyers of these apartments and real estate developers of these projects also have to shell out income tax. The rates which are set by the IGR (Inspector General of Registration) are higher than the market rates in several areas. Once the proposal given by the Finance Minister is implemented, sellers and buyers will not be affected by income tax even if the value of the transaction is 5% lower than the circle rate or IGR value. In case this difference is more than 5%, income tax will be imposed on the whole differential amount.

Let us assume that a buyer snaps up an apartment by paying Rs. 50 lakh and this covers 1, 000 sq. ft. in an area where Rs. 52.5 lakh will be the price based on the circle rate. The buyer would previously have to fork out income tax on Rs. 2.5 lakh which is the differential amount. After the Budget, the buyer will not have to pay any income tax since this amount will come under the 5% slab. However, suppose a buyer purchases the same apartment for Rs. 49 lakh, income tax will be imposed on the entire Rs. 3.5 lakh which is the differential amount.

Several realty sellers and homebuyers will be relieved since transactions rarely take place at the accurate market value. The Government should have considered concessions going up to 10% in outskirts and fringe areas according to experts since in the eastern and northern zones of Kolkata, the market rate and circle rate differ between 10-15%. IGR rates and rates in the market across several areas in Kolkata have got a little parity in recent times. Smaller apartment ventures in several middle class are confronting this issue. The IGR value has been increased by premium condominium projects or high-rise complexes in such zones like Altius in Tangra or Urbana in Ruby.

The differential is all the more pressing in case of commercial properties. There are huge price variations in case of locational benefits in the same neighborhood. A commercial space near a bus stand may fetch anywhere between Rs.15-20, 000 per sq. ft. and another commercial shop which is located in close proximity to the previous one may come for anything around Rs. 10, 000 per sq. ft.

The difference has crossed 5% in several locations like New Town, Rajarhat, BT Road, GT Road, Joka, Barasat and Madhyamgram according to experts. Buyers of homes in these areas will continue feeling the pocket pinch of income tax.

 

Resident Editor