Amendments made in union budget 2009 in section 80IB (10) related to Housing Projects

Further restrictions on benefits in respect of Housing Projects :

In the run up to the budget virtually every stake holder in the real estates wanted that benefits of section 80IB(10) of the Income Tax Act, 1961 be restored which have ceased to be operative except for the projects approved on or before 31 03 2007.  However, such expectations have been belied.

On the contrary, Budget include further stringent conditions about the tax free profits being earned by the builders and developers from housing projects eligible u/s. 80IB(10). As such section 80IB(10) is a sunset provision in the sense that a housing project approved on or before 31 03 2007 is only eligible for the tax free benefits. However, such project can be completed in next 4 financial years and profits from such project may arise on sale in subsequent year(s). Therefore, in that sense the section 80IB(10) continues to be operative for tax purposes. 

Under the existing provisions it is possible to take a view that benefit of section 80IB(10) is available not only to  builders and developers but is also available to the construction contractors.

Such a view had been further supported by the developments in the context of section 80IA(4). Section 80IA(4) is in relation to developing etc. of infrastructural facilities. Relevant wordings of section 80IB(10) and section 80IA(4) are similar as far as distinction between a developer and a contractor is concerned. In the context of section 80IA(4), it was decided by the Mumbai Tribunal in the case of Patel Engineering that such benefit was available to a works contractor also. Section 80IA(4) was thereafter retrospectively amended to clarify that benefit of that section was not available to a works contractor. No such amendments were carried out in section 80IB(10).

Above developments corroborated the view that the benefit of section 80IB(10) was available to a works contractor also  apart from the developers and builders.

Government never implemented positively the benevolent provisions of section 80IB(10) for the benefit of developers and builders. However,  when the matters went to various Tribunals, favourable decisions started coming considering the benevolent nature of the provisions.

Government does not want to confer benefit of section 80IB(10) to construction contractors. Therefore, on consideration of the developments mentioned above, it seems that the Government has considered it appropriate to take this pre-emptive step to amend the provisions retrospectively in this context.

In such a view of the matter, now Explanation is being inserted in section 80-IB(10) to provide that such benefit of 100% tax free income would not be available to a works contractor. This amendment will take effect retrospectively wef a. y. 2001-02 onwards.

Further, the objective of the tax benefit for housing projects is to encourage construction of houses for low and middle income households. Size of the units in such housing projects is restricted to 1,000 sq.ft. built up area in the cities of Delhi and Mumbai (including areas falling within 25 kms. of municipal limits of these cities) and 1,500 sq.ft. in other places.

However, Government observed that the prescribed small size of the units (flats)  is being circumvented by the developers and builders  by entering into agreement to sell multiple adjacent units to a single buyer or members of the same family.

Now therefore a restriction is being provided that such housing project shall not be allowed to allot more than one residential unit to the same person and if one unit has been allotted to an individual,  no other residential unit in such housing project would be  allotted to the spouse or minor children of such individual. Further no other residential unit in such housing project would be allotted to the HUF in which such individual is the Karta. Also no other residential unit in such housing project would be allotted to any other person representing such individual or the spouse or the minor children or such HUF.