Affordable Housing and tax benefits

Newly Section 80-IBA (Affordable Housing Scheme / House for All)

A new section 80-IBA has been enacted with effect from the 1st day of April, 2017. The section was inserted by Finance Act, 2016. Builders in housing sector providing group housing schemes can avail this section to promote affordable housing and avail tax benefits. Fresh amendments have been made in the 2017 February budget making the scheme more attractive.

The foregoing points may be useful for the assessees for taking a decision on doing such projects.

When the gross total income of an assessee includes any profits and gains derived from the business of developing and building housing projects, there shall, subject to the provisions given in the section, be allowed, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.

Approval of Project between: 01/06/2016 to 31/03/2019

Project should be Completed within 5 Year of Approval (last year it was 3 years). If approval for more than 1 time than 3 year from first approval.

Project was deemed to be completed when a certificate of completion of project as a whole is obtained in writing from the competent authority.

Non – Metro Cities                                              Metro Cities*+

*There was a ceiling of distance of 25 kms from the city limit on ariel route. Yhis has been deleted in 2017 budget.

+Chennai, Delhi, Kolkata or Mumbai.

Total Area of Project      Not Less than 2000 Square Meter            Not Less than 1000 Square Meter

Each Residential Unit      Does not Exceed 60 Square Meters          Does not Exceed 30 Square Meters

Project utilize % Permissible of Floor Area Ratio   Not Less than 80%         Not Less than 90%

Built-up Area of Shop or other commercial establishment   Does not exceed 3% of aggregate built-up area    Does not exceed 3% of aggregate built-up area

Where a residential unit in the housing project is allotted to an individual, no other residential unit in the housing project shall be allotted to the individual or the spouse or the minor children of such individual.

The Assessee has to maintain separate books of account in respect of housing project.

Illustration :

Project Eligible u/s 80-IBA           Other Project     Total Income

Gross Total Income                    100.00                          100.00              200.00

Less : Deduction u/s 80-IBA        100.00                                      0          100.00

Net Profit                                               0                                  0          100.00

Where the housing project is not completed within the period Five years (till last year it was three years) from date of approval, in respect of which a deduction has been claimed and allowed under section 80-IBA, the total amount of deduction so claimed and allowed in one or more previous years, shall be deemed to be the income of the assessee chargeable under the head “Profits and gains of business or profession” of the previous year in which the period for completion so expires.

For Example, Project was approved on 01.07.2016 than the project should be completed on or before 30.06.2021. If not completed before 30.06.2021 than deduction claimed u/s 80-IBA was taxed in FY 2020-21. (In our above example 100.00 deduction taken was taxed.)

It should also be noted that Changes in Service Tax also made as under:

Services by way of construction etc. in respect of-

(i) housing projects under Housing For All (HFA) (Urban) Mission/Pradhan Mantri Awas Yojana (PMAY);

(ii) low cost houses up to a carpet area of 60 square metres in a housing project under “Affordable housing in Partnership” component of PMAY,

(iii) low cost houses up to a carpet area of 60 square metres in a housing project under any housing scheme of the State Government, are being exempted from Service Tax with effect from 1st March, 2016.

Meaning of:

(a) “built-up area” means the “carpet area” (till last year it was inner measurements) of the residential unit at the floor level, including projections and balconies, as increased by the thickness of the walls, but does not include the common areas shared with other residential units, including any open terrace so shared;

(b) “Competent authority” means the authority empowered by the Central Government;

(c) “Floor area ratio” means the quotient obtained by dividing the total covered area of plinth area on all the floors by the area of the plot of land;

(d) “Housing project” means a project consisting predominantly of dwelling units with such other facilities and amenities as the competent authority may specify subject to the provisions of this section;

(e) “residential unit” means an independent housing unit with separate facilities for living, cooking and sanitary requirements, distinctly separated from other residential units within the building, which is directly accessible from an outer door or through and interior door in a shared hallway and not by walking through the living space of another household.’.


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