Reduce prices to survive or suffer: Goyal to builders
Reduce prices, is the mantra given by Union minister Piyush Goyal to developers to survive in this downturn. To do so, developers want government to reduce ready reckoner rates and change Income Tax Act.
By Varun Singh
Piyush Goyal, Union minister who holds vital portfolios in the Modi government asked developers to reduce prices to survive. Builders meanwhile, want government to make laws that shall not further tax them or home buyer for selling and buying at lower prices.
Why is this statement important in the current times, because Goyal may not be the first to ask so, but he probably is the first minister to explicitly tell developers that they should reduce prices.
According to sources it was a closed door webinar, but a video of the minister asking developers to reduce prices surfaced on social media. Some even tweeted the video and it was making rounds on the social messaging apps.
During the webinar with developers body NAREDCO, Goyal, said, “Unless you reduce your rates, believe me you are stuck with your material, you can choose to be stuck with the material and default with bank and then the material goes away, or you can choose to get rid of whatever you bought at high prices, look at this as a bad decision or an unfortunate situation and move forward.”
Goyal was to the point with his remarks, he further told the developer community that things are seriously stressed and builders best bet is to sell.
“If any of you here feels that government will be able to finance in such a way that you can hold longer and wait for the market to improve, market is not improving in a hurry, things are seriously stressed and your best bet is sell,” said Goyal.
He also advised builders to get rid of bank loans. Goyal said, “Those who have sold, leveraged less or got rid of their bank loans have survived this downturn, those who are saddled with large loans, who kept holding on to their price have suffered. My conscience is clear, because in every interaction of mine, I have said this point.”
According to Dr Niranjan Hiranandani, President, NAREDCO, the government should change laws, which penalizes the seller and buyer when they sell or buy at less than ready reckoner rates.
“The moment we sell at a price that is 10 per cent lower than the ready reckoner rate, both the seller and the buyer are penalized under Income Tax Act. The government should either reduce the ready reckoner rates or amend the Income Tax Act,” said Hiranandani.
Actually Hiranandani does have a point. To explain this further, Sumeet Mehta, Chartered Accountant and CEO, Paradigm Advisors said, “As per Section 43CA of Income Tax Act, 1961, if any developer sells his inventory at a discount of more than 10 per cent of the ready reckoner valuation of the said property, then the developer will have to pay tax on the discount allowed. This is because the law states that in such situations when the sale price is lower than ready reckoner price by more than 10%, then the ready reckoner price must be considered to be the sale price and tax paid on the said notional value.”
According to Mehta, if that is not enough, the Government has made the same difference between the sale price (here purchase price in the hands of buyers) and ready reckoner price, taxable as income in the hands of the buyer under Section 56 (2)(x) of Income Tax Act, 1961.
“This results in double taxation of the same amount, first time in hands of developer as a tax on notional income, and then in hands of buyer as tax on discount earned presumed to be an income,” said Mehta.
Many builders claim that such populous statement are made very often these days, but without any concrete action from the government side, nothing will help the realty sector.
“I am ready to sell at a lower price, but without financial assistance to the sector will there be a buyer? If the government doesn’t reduce home loan interest, doesn’t give some waiver in GST and stamp duty, why would anyone come to buy in such a market, where are the customers? Assistance is required in uplifting the customer sentiments to at least get them to the table for negotiations,” said a developer who didn’t wish to be named.