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Update on February 1, 2020:
- The tax holiday for projects under the affordable housing category available under Section 80IBA which was available for the projects which are approved by March 31, 2020, will be available even for the projects which are approved till March 31, 2021.
- Government extends additional Rs 1.5 lakh tax benefit on interest paid on affordable housing loans to March 31, 2021.
September 23, 2019: In order to give an impetus to the ‘Housing for All by 2022’ mission, the budget of 2016 had inserted Section 80IBA in the Income Tax Act. The benefits to developers, for obtaining approvals for projects under this section, would have come to an end on March 31, 2019. The benefits under Section 80IBA were extended till March 31, 2020, in the Interim Budget 2019. The finance minister, while presenting the full-fledged budget, has changed some of the conditions for availing of the benefits, with respect to the projects approved on or after September 1, 2019. Let us discuss the law, as applicable to projects approved before September 1, 2019 and those approved on or after this cut-off date.
What is Section 80IBA of Income Tax Act?
All the projects approved and meeting the conditions prescribed under Section 80IBA, are entitled to claim a deduction of 100% of the profits, with respect to the project approved. This benefit is available, only if the concerned housing project has been approved between June 1, 2016 and March 31, 2020. The time period prescribed here, is applicable for obtaining the approvals for the project and not for commencement of the construction, or completion of construction for the project.
Eligibility for Section 80IBA deduction
There are certain conditions that the developer has to satisfy, for availing the benefit of 100% tax-free income. Some of the conditions prescribed for projects approved under this section, remain unchanged, irrespective of whether the project is approved before or after September 1, 2019:
- The carpet area of the commercial establishment in the project, should not exceed 3% of the aggregate of carpet area of the project.
- The projects are required to be completed within five years, from the date of the approval of the authority concerned.
- The approval is deemed to have been granted when the plan is first approved, irrespective of the number of times the same has been revised later on.
- The project, for the purpose of availing of the benefits, is deemed to have been completed when the certificate of completion has been obtained in writing, from the approving authority of the area. So, if the developer is not able to obtain the completion certificate before completion of five years, he will not be entitled to this deduction and the deduction if any claimed in earlier years, shall be reversed and will become taxable in the year in which the period of five years expires.
- There can be only one project on the plot of land earmarked for the housing project.
- Only one flat can be allotted to one family comprising of the husband, wife and minor children.
- The developer has to maintain separate books of accounts for the housing project, for availing of the deduction under this section.
Amendments in Section 80IBA
However, certain conditions have been modified for projects approved after September 1, 2019, as compared to the conditions prescribed for projects approved before September 1, 2019. These relate to the area of the plot and area of the dwelling units to be constructed.
Conditions for projects approved after September 1, 2019
Area of the unit and plot
As far as the area of the plot of land for the housing project is concerned, for projects that are approved before September 1, 2019, the size of the plot of land should be a minimum of 1,000 sq metres for projects situated within the municipal limits of the four metro cities and a minimum of 2,000 sq metres for projects in the rest of India. According to the new scheme, the area of Delhi and Mumbai have been expanded, to include the entire National Capital Region (NCR) and Mumbai Metropolitan Region (MMR), respectively. Additionally, the new scheme includes Bengaluru and Hyderabad within the ambit of metro cities, for the purpose of minimum size of the plot of land, on which the eligible housing project can be undertaken.
For projects approved prior to September 1, 2019, the law provides for a cap on the carpet area of the dwelling unit to be constructed, for qualifying as an eligible project. For metro cities, the limit was set at 30 sq metres and for the rest of India, it was set at 60 sq metres. The maximum size of the unit that can be constructed, has been raised to 60 sq metres and 90 sq metres, for metros and non-metros, respectively. The cities to be included in both the categories have been revised on the lines as discussed above, for the purpose of determining the eligible size of the plot of land on which this project is to be constructed. So, with this amendment, the supply of dwellings of a reasonable size, will increase in metro cities, as well as other places in India.
Price of the affordable housing unit
There was no monetary limit prescribed under the earlier scheme, for the value of the dwelling units to be constructed. However, since the Good and Services Tax has defined what an affordable house is, the same definition has been borrowed here and made applicable for projects approved on or after September 1, 2019 and before March 31, 2020. Now, the maximum value of the house to be constructed for being eligible under this section, for projects approved after September 1, 2019, shall be restricted to Rs 45 lakhs as per the stamp duty rates, irrespective of the rate at which the developer sells them to the customers. This amendment of putting a cap on the monetary value of the house, will adversely affect the residents of metro cities, especially cities like Mumbai as it is almost impossible for one to get a residential flat in the municipal limits of Mumbai at this price, although such units may be available in other cities of the MMR. Nevertheless, this may help the government to decongest the already congested metro cities.
For projects under this section, there is a requirement that at a minimum of 90% of the available FSI should be used for plots in metro cities and 80% of the available FSI should be used for plots in non-metro cities, for projects approved prior to September 1, 2019. The same provision shall continue to apply for projects approved on or after September 1, 2019. However, the definition of metro and non-metro cities, shall be as per the revised definitions, as explained above.
In the final analysis, the window for approval of new projects is a very small period of seven months, which is not sufficient for a developer to plan the project, apply and get the necessary approvals within this period.
FAQs on deduction under Section 80IBA
What is Section 80IBA of the Income Tax Act?
Section 80IBA of the Income Tax Act entitles the developers of affordable housing projects to claim deduction of 100% of the profits, provide the project meets certain conditions.
What is the Section 80IBA time limit for approval of projects?
The tax holiday for affordable housing projects under Section 80IBA, is available for projects which are approved till March 31, 2021. The project is deemed to have been approved, when its plan is first approved.
What is the carpet area limit under Section 80IBA?
To avail of the exemption under Section 80IBA, the carpet area of the units should not exceed 60 sq metres in metropolitan cities and 90 sq metres in non-metros.
What is the property value under Section 80IBA?
To avail of the exemption under Section 80IBA, the stamp duty value of the house should not exceed Rs 45 lakhs.
(The author is a tax and investment expert, with 35 years’ experience)