No Tax On Unsold Inventory For Two Years
Finance Minister Piyush Goyal On February 1 extended the period for taxing unsold inventory to two years from the existing one year in the Interim Budget 2019-20. According to private estimates estimate, there are more than 6.73 lakh unsold units across the top seven cities.
"For giving impetus to the real estate sector, I have proposed to extend the period of exemption from levy of tax on notional rent, on unsold inventories, from one year to two years, from the end of the year in which the project is completed," Goyal said in his Budget Speech.
Last year, changes were made in the tax law to impose two new taxes on real estate developers on the unsold stock. By inserting Section 23 (5) in the I-T Act last year, the Central Board of Direct Taxes (CBDT) made it mandatory for developers to pay tax on the unsold stock based on their notional rental income if the stock is older than one year.
By inserting Section 28 (via), on the other hand, the government imposed 30 per cent tax on the fair value of the unsold stock which a developers leases. This was over and above that tax, the developer will be paying on the annual rental income. Under this Section, unsold inventory which is leased would be treated as a capital asset from the tax point of view.
"Relaxation of notional rent on unsold inventory to two years will ease burden on developers, who now have more time to sell their projects," says Surendra Hiranandani, Founder & Director, House of Hiranandani.
“Considering that unsold inventory is a key concern for developers, the move to extend exemption period for levy of tax on notional rent from one year to two years is also a welcome move,” said ASF Group CMD Anil Saraf.