To ease home buyers, the government on Thursday doubled the tax exemption limit on the price differential between the circular rate and the deal value to 20%, a key component of the new economic stimulus package of 2.65 crore which also includes easy working capital for loans to 26 sectors affected by the Covid-19 pandemic and incentives for companies to hire more people.
Finance Minister Nirmala Sitharaman announced 12 measures in the third tranche of the government’s efforts to boost the economy, Aatmanirbhar Bharat Abhiyan (Independent India Initiative) 3.0. This includes the production linked incentive (PLI) of Rs 1.46 lakh crore for 10 sectors which was announced on Wednesday.
SEE | Nirmala Sitharaman Announces New Stimulus Steps: Key Highlights
Sitharaman said that including the Rs 2,65,080 crore package announced on Thursday, the total stimulus amount announced by India is Rs 29,87,641 crore, including the monetary measures taken by the Reserve Bank of India (RBI), or about 15% of the Gross Domestic Product (GDP). Minus the RBI’s monetary measures, the size of the stimulus is 9% of GDP, he added.
The finance minister also pointed to recent indicators on the revival of the economy, including the purchasing managers composite index that hit 58.9 in October, and the assessment by loan buying firm Moody’s that the Indian economy would contract. 8.9% in calendar 2020, better than its previous estimate of a 9.6% decline. To be sure, the Nowcast report from the Reserve Bank of India (RBI) projected that the Indian economy could contract by 8.6% in the next three months ending in September.
Among Thursday’s announcements, the job creation one implies that the government pays both the employee and employer contributions of employees hired as of October 1, 2020, for a period of two years under certain conditions (the monthly salary it must be less than 15,000 rupees and the company should have up to 1,000 employees). For companies with more than 1,000 employees, the government will pay only the employee contribution. The plan, Aatmanirbhar Bharat Rozgar Yojana, aims to incentivize job creation.
Speaking about income tax (IT) relief for home buyers and developers, Sitharaman said: “There are quite a few [unsold] inventories tell us in real estate … at this time what prevails is the differential between the circle rate and the deal value … you get relief. Now, what we have decided is to increase the spread between 10% and 20% for the period from the date of this announcement to June 30, 2021 only for the primary sale … and the necessary amendment in the IT law will be done in due course. “
The finance minister said the decision on the house price differential will help eliminate unsold inventories.
Naveen Wadhwa, CEO of Taxmann, said that a 5% cap was first introduced in the 2018 budget, which was subsequently increased to 10% by the Finance Act of 2020. “This cap has now been increased to 20%. % only for primary sale of homes units of value up to Rs 2 crore. This will bring relief to developers who have sold residential units for less than the stamp duty. However, it will not provide any relief in the event of sale of commercial property or for resellers of residential units. “
Niranjan Hiranandani, national president of the National Council for Real Estate Development (Naredco) said: “Although it is a significant relief for the sector, the Rs 2 crore limit will exclude many projects in metropolitan areas. And commercial properties should have been included in their scope. “
The finance minister said this is a great relief to the middle class “who want to buy when the housing sector is going through a supply-side boom … but had no incentive to buy. We now offer incentives in the form of tax relief. “
Speaking about the second version of the Emergency Credit Line Guarantee Scheme (ECLGS 2.0), Sitharaman said: “We are rolling out credit guarantee support to all stressed sectors. Is [is] part of what was recognized by the Kamath Committee, which analyzed various sectors that are stressed as a result of the pandemic ”.
Although details for 26 sectors were not immediately announced, the stressed sectors identified by the committee include construction, real estate, cement, energy, steel, roads, logistics, transportation, retail, textile, consumer durables, pharmaceuticals, chemicals, gems and jewelry, auto parts, mining, hospitality, tourism and aviation. “A formal notification will soon be issued to name the 26 sectors,” said a Finance Ministry official requesting anonymity.
The plan will provide additional loans up to 20% of outstanding credit with a term of five years, including a one-year moratorium on repayment of principal. This scheme will be available until March 31, 2021, added Sitharaman.
ECLGS is one of the key components of the Rs 20 lakh crore economic stimulus package under the Atmanirbhar Bharat Abhiyan launched in mid-May, which offered additional working capital financing of 20% of outstanding credit as of February 29, in form of a term loan to MSMEs and professionals. The scheme offers an easy additional working capital loan at a concessional interest rate to an existing borrower who is not a defaulter.
The government has been taking various steps to boost an economy hit by the pandemic and a hard 68-day lockdown until April and May to control the spread of the deadly Coronavirus (Covid-19) pandemic. The Indian economy experienced a record contraction of 23.9% in the first quarter of the current financial year.
Between March 26 and May 17, the government released the first stimulus and relief measures worth Rs 20.97 lakh crore. On October 12, it announced a second package of Rs 73,000 crore, focusing on stimulating demand. The finance minister said the measures announced on Thursday continue with the two stimulus packages already announced and that they aim to create more job opportunities.
The third stimulus package provides for an additional outlay of Rs 10,000 crore to boost rural employment under PM Garib Kalyan Rozgar Yojana, Rs 18,000 crore of additional outlay for urban housing under PM Awaas Yojana (PMAY), Rs 65,000 crore fertilizer subsidy to provide the to farmers in the next harvest season and Rs 3,000 crore to boost project exports through EXIM Bank.
To boost infrastructure financing, the government also announced a capital investment of Rs 6 billion in the National Infrastructure and Investment Fund (IFRS) debt platform. This will help IFRS to provide Rs 1.1 million lakh debt for infrastructure projects by 2025, the finance minister said.
He said the package also includes an additional budget stimulus of Rs 10,200 crore for capital and industrial expenditures on national defense equipment, industrial infrastructure and green energy. The other component of the package is a fund of Rs 900 crore for the Department of Biotechnology for research and development of a Covid vaccine from India, he said.
Uday Kotak, President of the Confederation of Indian Industry (CII) thanked the government for extending ECLGS for the 26 stressed sectors identified by the Kamath committee and the health sector.
“This will help sectors, which employ large numbers of people, to overcome the cash crisis and working capital problems, due to low demand,” he said.
“Designed in line with a similar existing scheme for MSMEs, ECLGS 2.0 will provide additional 100% guaranteed unsecured credit, thus helping to provide interim liquidity support to these sectors, until demand recovers,” he added.
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