AFFORDABLE HOUSING

AFFORDABLE HOUSING

Budget 2019 has brought some relief and hopes for the home buyers and the developers as it was anticipated. After a long low spell, finally some silver linings could be seen as a good number of direct and indirect measures were proposed for the revival of the real estate industry.

Section 80-IBA of INCOME TAX ACT, 1961:

What is Section 80IBA of the Income Tax Act?

Section 80 IBA allows for income tax deduction for assessees who have any gains or profits from the business of building and developing housing projects in the affordable housing segment. The key reason for insertion of Section 80 IBA in the Income Tax Act is to incentive the development of affordable housing for the builders and promoters of these projects. The amount of deduction is equal to hundred per cent (100%) of the profits and gains derived from such business.

Conditions to be satisfied by such housing projects:

(i). Assessee must have the profits and gains derived from the business of building and developing housing projects.

(ii). The concerned authority has approved the housing project after 1st June 2016 but on or before 31st March 2019.

(iii). The assessee must complete the project within 5 years from the date of receiving approval from the competent authority.

(iv). The particular housing project will only be considered as complete when the certificate of project completion as a whole is received in writing from the concerned authorities.

(v). The carpet area of the commercial establishments such as shops within the housing projects should not exceed three per cent of the aggregate carpet area.

(vi). Following are the qualifying criteria regarding size of the plot, residential units and minimum utilization of the Floor Area Ratio (FAR) for a project to qualify for tax benefits u/s 80 IBA.

 

Project Location Area of Land on Which the Project is Located Carpet Area of the Residential Units   Utilisation of Permissible FAR
Delhi, Mumbai, Kolkata and Chennai Not less than 1,000 square metres Not more than 30 square metres Not less than 90%
Project located in locations than the cities listed above Not less than 2,000 square metres Not more than 60 square metres Not less than 80%

 

(vii) No residential unit in the housing project will be allotted to an individual, their spouse or minor children if they already have an allotted residential unit in the project.

(viii) The assessee has to maintain a separate book of accounts for the housing project.

 

  Project Eligible  u/s 80-IBA Other Project Total Income
Gross Total Income 100 100 200
Less: Deduction u/s 80-IBA 100 0 100
Net Profit 0 0 100

 

(ix)  The project is the only housing project on the plot of land as specified in clause (vi)

  • If the project is not completed within 5 years from the date of approval, the profits which were allowed as deduction under this section shall be deemed to profits of the year in which such time limit of completion expires and chargeable to tax under the head “Profits and gains of business or profession”.
  • This deduction is not applicable to an assessee who completes the project as a work contract who executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government).
  • The provisions of Minimum Alternate Tax us.115JB or Alternate Minimum Tax us.115JC, depending on the status of the assesse, will be applicable on the profits of the housing project which is eligible for deduction under section 80-IBA are available.

Where the projects approved on or after the 1st day of September, 2019, the condition specified in point (vi) above shall be substituted by the following condition

Project Location Area of Land on Which the Project is Located Carpet Area of the Residential Units            Utilisation of Permissible FAR
Metropolitan cities of Bengaluru, Chennai, Delhi National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai (whole of Mumbai Metropolitan Region); Not less than 1,000 square metres Not more than 60 square metres Not less than 90%
Project located in locations than the cities listed above Not less than 2,000 square metres            Not more than 90 square metres Not less than 80%

 

The stamp duty value of a residential unit in the housing project does not exceed forty-five lakh rupees in respect of the projects approved on or after the 1st day of September, 2019.

Deduction eligible even if Developer not “owner” of land under Joint Development Agreement:

Section 80IBA allows deduction to an assessee engaged in the business of building and developing housing projects in the affordable housing segment. There is no requirement that the land must be owned by the assessee seeking the deduction. Under the development agreement, the assessee had undertaken the development of housing project at its own risk and cost. However land owner (under Joint Development Agreement) cannot avail deduction under this section.

 

Section 80EEA of INCOME TAX ACT, 1961:

In order to provide an impetus to the “Housing for all”, the government has now extended the interest deduction allowed for low-cost housing loans taken during the period between 1 April 2019 and 31 March 2020. Accordingly, a new Section 80EEA has been inserted to allow for an interest deduction from AY 2020-21 (FY 2019-20).

This deduction of Rs. 1.5 Lakhs would be applicable from Financial Year 2019-20 onwards and would be over and above the tax deduction of Rs. 2,00,000 under Section 24 and Rs. 1,50,000 under Section 80C.

There are certain conditions for claiming this deduction under the newly inserted Section 80EEA and only a person who satisfies all these conditions would be eligible to claim deduction under this section. These conditions are:-

  • Deduction is available to individual taxpayers only. (Both resident and non-resident)
  • Loan has been sanctioned by a financial institution during the period beginning on 1-4-2019 to 31-3-2020.
  • The stamp duty value of house property does not exceed 45 lakhs.
  • Assesse does not own any residential house property on the date of sanction of loan.

Also, that where a deduction under this section is allowed for any interest, deduction shall not be permitted of such interest under any other provisions of the act for the same or any other assessment year.

 

Compiled By  CA SRIRAM V. RAO.

DATE:  31st October 2019.

BUY BACK OF SHARES

BUY BACK OF SHARES

 

TAXABILITY OF BUYBACK OF SHARES OF COMPANIES AS AMENDED BY FINANCE (NO. 2) ACT 2019 AND TAXATION LAWS (AMENDMENT) ORDINANCE, 2019.

EXISTING PROVISION OF TAX ON BUY BACK OF SHARES

The government introduced the concept of buyback tax under Sec 115QA vide the Finance Act 2013, wherein tax at the rate of 20 per cent (excluding surcharge and cess) was levied on the amount of income distributed by unlisted companies to the shareholders in the form of buy back of unlisted shares. Consequent to levy of tax u/s 115QA paid by the company, the amount of consideration received by the shareholder is exempt as per the provision of Section 10(34A) of the Act. In other words, the liability to pay tax on the event of buy back has shifted from the shareholders to the company.

The term ‘distributed income’ means the difference between considerations paid by the company on buyback less the amount received by the company on issue of such shares.

It is pertinent to note that this tax was applicable to income distribution by unlisted companies, and not listed companies. In other words, income distributed by listed companies was not covered under the purview of buyback tax. Instead, shareholders were liable to capital gains tax on the same.

AMENDMENT MADE BY FINANCE ACT (NO.2) 2019

The Finance (No. 2) Act, 2019 had extended the provisions of section 115QA and section 10(34A) have been extended by the Finance (No. 2) Act, 2019 to the shares of listed companies with effect from 05-07-2019.

The Explanatory Memorandum to Finance (No. 2) Bill, 2019 explains the above amendments as under:

This section was introduced as an anti-abuse provision to check the practice of unlisted companies resorting to buy-back of shares instead of payment of dividends. This practice of widespread abuse was noted, in the past, amongst unlisted companies where the taxpayers preferred it for tax avoidance, as tax rate for capitals gains was lower than the rate of Dividend Distribution Tax (DDT). However, instances of similar tax arbitrage have now come to notice in case of listed shares as well, whereby the listed companies are also indulging in such practice of resorting to buy-back of shares, instead of payment of dividends.

In order to curb such tax avoidance practice adopted by the listed companies, the existing anti abuse provision under Section 115QA of the Act, pertaining to buy-back of shares from shareholders by companies not listed on a recognised stock exchange, is proposed to be extended to all companies including companies listed on recognised stock exchange. Thus, any buy-back of shares from a shareholder by a company listed on recognised stock exchange, on or after 5th July 2019, shall also be covered by the provision of section 115QA of the Act and would be liable to pay additional income tax at the rate of 20 percent. Accordingly, it is also proposed to extend exemption under clause (34A) of section 10 of the Act to shareholders of the listed company on account of buy-back of shares on which additional income-tax has been paid by the company.

AMENDMENT MADE BY TAXATION LAWS (AMENDMENT) ORDINANCE, 2019

The amendment by the Finance (No. 2) Act, 2019 extended the tax under section 115QA to all buy-back of shares by listed companies on or after 05-07-2019 irrespective of whether public announcement was made by listed company prior to 05-07-2019. This caused undue hardships to those listed companies whose buy-backs were announced on or before 05.07.2019.

In order to provide relief to listed companies which have already made a public announcement of buy-back before 5th July 2019, the Ordinance inserts a proviso in sub-section (1) of Section 115QA of the Act to provide that tax on buy-back of shares in case of such companies shall not be charged under section 115QA.

WHETHER BUY-BACK OF LISTED SHARES ARE EXEMPT IN SHAREHOLDER’S HANDS U/S 10(34A) IF MADE ON OR AFTER 05-07-2019 FOR WHICH PUBLIC ANNOUNCEMENT WAS MADE BEFORE 05-07-2019?

In order to provide relief to listed companies which have already made a public announcement of buy-back before 5th July 2019, the Ordinance inserts a proviso in sub-section (1) of Section 115QA of the Act to provide that tax on buy-back of shares in case of such companies shall not be charged under section 115QA. However, no corresponding amendment has been made by the Ordinance to section 10(34A) to bring the buy-back consideration to tax in shareholder’s hands in such cases.

In terms of amendment made by the Finance (No. 2) Act, 2019, any buy-back made on or after 05-07-2019 by listed company shall be exempt in the hands of shareholders. This is regardless of whether public announcement was made prior to 05-07-2019. The position continues unchanged even after the Ordinance.

The position is summarised as under:

Public announcement for buy-back of shares when made by listed co Buy-back of shares when made by listed co. Taxability in company’s hands u/s 115QA Treatment of buyback consideration in shareholder’s hands u/s 10(34A)
Before 05-07-2019 Before 05-07-2019 Not taxable Not exempt. Taxable in shareholder’s hands
Before 05-07-2019 On or after 05-07-2019 Not taxable [Proviso to section 115QA(1) inserted by the Ordinance] Any income arising to shareholder from buy-back of listed shares on or after 05-07-2019 is tax-exempt u/s 10(34A) of the Act. No change made by Ordinance in this.
On or after 05-07-2019 On or after 05-07-2019 Taxable Exempt u/s 10(34A)

 

Compiled By  CA DHANUSH D BOLAR.

DATE: 30th November 2019.