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.