Recent Income Tax Relief for New Residential Homes

Recent Income Tax Relief for New Residential Homes

The Union Finance Minister, Nirmala Sitharaman on November 12th 2020 unveiled a new incentive scheme to developers and home buyers to boost demand for the housing sector by doubling the differential between Circle Rate (Stamp duty Value) and Transaction value from 10% to 20%. This relief is applicable for primary sale of residential units, the cost of which does not exceed Rs.2 Cr.

Earlier, if a builder sold a residential unit at a price below circle rate, the difference used to be taxed first in the hands of builder as Profits and Gains from Business or Profession by invoking section 43CA and secondly in the hands of the buyer as Income from Other Sources, invoking section 56(2)(x), resulting in same income getting taxed twice. A relief was, however granted in the Budget 2018, whereby such difference was ignored up to 5%. This was increased to 10% in the Budget 2020, which is now further increased to 20%.

The whole gamut of relief can be better understood by the following illustration.


This illustration represents the tax implication on sale of a new residential house below circle rate not exceeding 20% in case-1 and exceeding 20 % in case-2.

  Circle rate


Sale Value


Difference Threshold limit-20%


Case-1 60 50 10 10


Not taxable in either hands
Case-2 60 45 15 9


 The entire difference is taxable in both the  hands


In Case 1, against the circle rate of Rs.60 Lakh, the house is sold for Rs.50 Lakh, difference being Rs.10 Lakh, which is just equal to the threshold limit. In this case, there is no tax burden on either party since the limit is not crossed.

In Case 2, sale value for the same type of house is Rs.45 Lakh only. In this case, the house is sold below the threshold limit of 20% on sale consideration and hence the builder has to disclose Rs.15 Lakh as Income from Profits and Gains from Business or Profession and the buyer also has to disclose Rs.15 Lakh as Income from Other Sources.

It can be seen from the above table that, what is subjected to tax in the hands of the developer and the buyer is the entire difference.


  1. Such relief is available only to sale of residential units.
  2. The sale must be primary i.e. first sale from the developer to buyer
  3. Value of the property should be equal to or less than Rs. 2 Cr
  4. This relief is available up to June 30th


Author: CA. Jose Zachariah, FCA




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