In continuation to my earlier article on the income tax benefits extended for owning a house, here is the article which explains various other incentives provided for owning/constructing residential house. Let us discuss the various non income tax incentives/facilities provided for owning a residential house as well as tax benefits provided to a builder or developer.
Of various lending by the financial institutions the interest rate on home loan are cheaper than money lent for other purposes including for your business. The lower lending rates help an ordinary citizen to fulfill his dream of owning a house.
In addition to lower interest rates, RBI mandates all banks to lend certain percentage of their overall lending to priority sectors which covers lending for purchase, construction or repairs of residential house upto a certain threshold.
Loans to individuals up to ₹ 20 lakh for purchase/construction of a dwelling unit per family provided the overall cost of the dwelling unit does not exceed ₹ 25 lakh are eligible to be classified under priority sector. In terms of the Compendium for SFBs, loans to individuals up to ₹ 28 lakh in metropolitan centres (with population of ten lakh and above) and ₹ 20 lakh in other centres, are eligible to be classified under priority sector, provided that the cost of dwelling unit does not exceed ₹ 35 lakh and ₹ 25 lakh, respectively. Though the residential houses purchased in the urban area specially the metro cities may not fit into the criteria of 28 lacs overall cost but such mandatory lending will certainly helps the people in rural area or in smaller cities to own a house.
Likewise the priority sector lending covers money lent for repairs of the residential house as well and covers loans up to ₹5 lakh in metropolitan areas and up to ₹2 lakh in other area.
Any amount lent to promoter/builder for construction of house for poor section of the society are also treated as priority sector lending if the total cost of the house does not exceed ₹10 lakh per residential unit. Any family within income of not more than Rs. 2 lakh per year qualify as poor sections of the society, referred to as “economically weaker sections and low income groups” for this purpose . Even any refinance done by banks to approved housing finance company is treated as priority lending subject to a ceiling ₹10 lakh per borrower.
Moreover money lent to any governmental agency for construction of residential units for slum clearance and rehabilitation of slum dwellers upto ₹10 lakh per dwelling unit are also treated as priority sector lending.
In addition to mandatory priority sector lending, the government also provides subvention of interest on home loans to specified category thus partly subsidising the interest cost to the buyer. Under the interest subvention scheme the government provides an interest subvention of 6.50% of affordable housing to economically weaker sections of the society for loans upto Rs. 6 lacs. So the borrower from weaker section has to only bear the interest above 6.50% per annum.
To make purchase of house affordable and give tax incentives to Real Estate Developers Government have announced 100% deduction of the profits and gains derived from construction business, by insertion of section 80 IBA of Income Tax Act, 1961. The project must be completed within a period of five years from the date of approval by the competent authority. The project will be deemed to be completed where certificate of completion in obtained from competent authority in writing.
Certain other conditions has been prescribed with respect to project size and residential unit as enumerated below:
If Project is Approved On or After to 1st September, 2019
|Location of project||Area of plot of land on which project is situated||Carpet area of the residential unit||Project Utilization of Floor area ratio|
|Where project is located within the 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 to exceed 60 square metres||Not less than 90% permissible under rules made by Government or local authority|
|Where the project is located in any other place||Not less than 2,000 square metres||Not to exceed 90 square metres||Not less than 80% permissible under rules made by Government or local authority|
Note: The stamp duty value of a residential unit in the housing project does not exceed forty-five lakh rupees
From the above it becomes amply clear that the government wants you to own a house and has provided various incentives under banking as well as services tax laws. It also provides tax incentives to the developer to construct affordable houses to ensure every one has roof over his head.
(The Author is Chief Editor, Apnapaisa and can be reached at [email protected] Views are personal.)
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(Republished with Amendments by Team Taxguru)