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National: Government initiates to control flipping in realty market

Indian Government has taken an initiative to deter speculators from real estate market and limit the housing supply in luxury segment of real estate. Steps taken towards this end include a one -percent Tax Deducted at Source (TDS) on property transactions, which cost above Rs. 50 lakh from June 1, 2013, considering the ready reckoner prices or stamp duty the base value for transactions than the agreement value and reduction on the percentage of service tax abatement of flats where the carpet area is equal to or more than 2000 square feet. The latter will lead developers to pay more service tax than they paid before.

 

The short term repercussion of these steps is that many investors would prefer to invest in property before the date when these steps will be implemented. Moreover, one can anticipate that in order to compensate the increased service tax, developers might increase the total selling cost of projects. Hence, there might be an increase in the property rates.

 

As far as curbing black marketing is concerned, a check on such unlawful practices will be seen as home buyers will be subjected to tax deductions at source on payment made either to the developer or the seller and will have to deposit the same to the government. Moreover, not only will the agreement value be undermined as the market value will be the criteria of calculation of income tax, but if the difference between the two exceeds Rs 50,000, the difference will be chargeable at the buyer’s end. Eventually, this will also check speculative investing. Given, the costs the government is about to levy upon investors and developers, the process might help to filter only serious players.

 

While these steps might help reduce the over supply of luxury projects across cities and subsequently help in the sale and purchase of unsold inventories belonging to the category of high end segment of real estate, it will certainly not impact the demand for luxury projects.

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