Demystifying Section 80IBA: 100% Income Tax Deduction for Affordable Housing Projects

Real estate sector is one of the most globally recognized sectors. It comprises of four sub sectors – housing, retail, hospitality, and commercial. Corporate environment and the demand for office space are few of the factors for the growth. This growth in the sector plays a substantial role in the increased prices of the lands and accommodation. With this growth it has become really challenging for the law administrators to provide affordable housing, sanitation, and a secure environment to the people. Real estate prices are increasing multifield and approx. 1/5^th of the total cost of an accommodation are paid in the forms of various taxes/duties such as Registration Fees, Goods and Service Taxes, etc. Apart from this on a average of 30% taxes are paid by the real estate developers on the profits made by them, incidence of which is eventually transferred to the buyer, resulting in further increase in the cost of their accommodation.

The Government of India to reduce the total cost of purchasing a house has come out with various relaxations like reduction in the GST Rates to 1% from 12% and granting 100% tax deduction under section 80IBA to the real estate developers on the profit made from affordable housing scheme projects.

What is Section 80IBA of Income Tax Act?

All the projects approved between June 1, 2016 and March 31, 2020 and meeting the criteria mentioned in the section are entitled to claim 100% tax deductions from the profits made. The section is reproduced here.

Section 80IBA(1): Where 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 of this section, be allowed, a deduction of an amount equal to hundred per cent of the profits and gains derived from such business”

Eligibility/Conditions to Claim Deductions:

There are certain conditions that the developer has to satisfy, for availing the benefit of 100% tax-free income which are:

1. An assessee should have derived profit from the business of developing and building a housing project.

“housing project” means a project consisting predominantly of residential units with such other facilities and amenities as the competent authority may approve subject to the provisions of this section;

2. the project is approved by the competent authority after the 1st day of June, 2016, but on or before the 31st day of March, 2019*

“competent authority” means the authority empowered to approve the building plan by or under any law for the time being in force”

Note: In order to give an impetus to the ‘Housing for All by 2022’ The benefits under Section 80IBA were extended till March 31, 2020, in the Interim Budget 2019 with certain specific conditions for availing of the benefits, with respect to the projects approved on or after September 1, 2019. We will discuss the changed condition in later part of the article as applicable to projects approved before September 1, 2019 and those approved on or after this cut-off date;

3. the project is completed within a period of 5 years from the date of approval by the competent authority. In case of a housing project where multiple approval in respect of a housing project, the project shall be deemed to have been approved on the date on which the building plan of such housing project was first approved by the competent authority. The project will be deemed to be completed when a certificate of completion of project as a whole is obtained in writing from the competent authority;

4. the built-up area of the shops and other commercial establishments included in the housing project should not exceed 3 percent of the aggregate built-up area;

“built-up area” means the 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”

5. The project should be on a Land measuring not less than (i) 1000 Sq. Mt. in case if it is situated in cities of Chennai, Delhi, Kolkata or Mumbai* (ii) 2000 Sq. Mt. in case of any other place;

6. the built-up area of the residential unit comprised in the housing project should not exceed 30 square metres, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai* and 60 metres, where the project is located in any other place;

7. the project should be the only housing project on the plot of land i.e. there can not be two projects on the same land totalling to 1000 Sq. Mt. or 2000 Sq.Mt. as the case may be;

8. the project should utilise not less than 90% (Chennai, Delhi, Kolkata or Mumbai)* in of the floor area ratio permissible in respect of the plot of land under the rules to be made by the Central Government or the State Government or the local authority, as the case may be. 90% shall be substituted with 80% of such floor area ratio in case of any other place other than Chennai, Delhi, Kolkata or Mumbai.

9. There should only be one unit allotted to one family in that project. Family for this section means individual his/her spouse and the minor children of such individual;

10. the developer should maintain separate books of account in respect of the housing project.

 * for the projects approved after September 1, 2019, in the place of Chennai, Delhi, Kolkata or Mumbai the words Located within the metropolitan cities of  Bengalur, Chennai, Delhi, National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai ( whole of Mumbai Metropolitan Region) shall be substituted.

Special Point:

There was no monetary limit prescribed earlier for the value of the dwelling units to be constructed. However after 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.

Summary in case the projects are approved BEFORE September 1, 2019:

S.No.	Criteria	Condition
1	Approval Duration	After 01-06-2016 but on or before 31-08-2019
2	Completion Period	Within a period of 5 Years from the date of approval
3	Commercial Establishments in Housing Project	The shops and commercial carpet area cannot exceed 3 % of total built-up area
4	Value of Residential Unit	Not Applicable
5	Accounting	maintains separate books of accounts of this housing project
6	Size of the residential unit in:
	Chennai, Delhi, Kolkata or Mumbai	Less than 30 sq. meters
	Any Other Place	Less than 60 sq. meters
7	Minimum Size of Project:
	Chennai, Delhi, Kolkata or Mumbai	1,000 sq. meters or more
	Any Other Place	2,000 sq. meters or more
8	Project Utilization of Floor Area Ratio
	Chennai, Delhi, Kolkata or Mumbai	90% or more of the floor area ration
	Any Other Place	80% or more of the floor area ration

Summary in case the projects are approved AFTER September 1, 2019:

S.No.	Criteria	Condition
1	Approval Duration	After 01-06-2016 but on or before 31-08-2019
2	Completion Period	Within a period of 5 Years from the date of approval
3	Commercial Establishments in Housing Project	The shops and commercial carpet area cannot exceed 3 % of total built-up area
4	Value of Residential Unit	the stamp duty value of a residential unit in the housing project does not exceed 45 lakh rupees.
5	Accounting	maintains separate books of accounts of this housing project
6	Size of the residential unit in:
	Located within the metropolitan cities of  Bengalur, Chennai, Delhi, National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai ( whole of Mumbai Metropolitan Region)	Less than 60 sq. meters
	Any Other Place	Less than 90 sq. meters
7	Minimum Size of Project:
	Located within the metropolitan cities of  Bengalur, Chennai, Delhi, National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai ( whole of Mumbai Metropolitan Region)	1,000 sq. meters or more
	Any Other Place	2,000 sq. meters or more
8	Project Utilization of Floor Area Ratio
	Located within the metropolitan cities of  Bengalur, Chennai, Delhi, National Capital Region (limited to Delhi, Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad), Hyderabad, Kolkata and Mumbai ( whole of Mumbai Metropolitan Region)	90% or more of the floor area ration
	Any Other Place	80% or more of the floor area ration

FAQ

1. Which types of entities can claim the deduction under this section?

Assessee may be an individual, HUF, AOP, BOI, firm, company or any other person, anyone can claim deduction under this section.

2. I am developing two projects, one of which is an affordable housing project, can I claim deduction?

Yes, provided you maintain separate books of accounts for both the projects.

3. I am a work contactor working on a affordable housing project meeting all the mentioned criteria, can I claim deduction under this section?

No, the benefit of this section is not available to the assessee who executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government).

4. What happen when the housing project is not completed within 5 years and deduction has been already claimed and allowed under this section in earlier years?

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.

5. Do we have to pay the taxes with interest in case the project is not completed within 5 years?

The point of taxation is the year in which the 5 years period expires, hence no interest liability arises on the deduction already claimed in the earlier years.

6. I have claimed deductions from the profits under this section, can I claim any other deduction from the same profits in that year or any other year?

Where any amount of profits and gains derived from the business of developing and building housing projects is claimed and allowed under this section for any assessment year, deduction to the extent of such profit and gains shall not be allowed under any other provisions of this Act.

Disclaimer

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. No one should act on such information without appropriate professional advice, but only after a thorough examination of the particular situation.