Sub: Opinion on Section 80-IBA of Income Tax Act, 1961 (i.e Affordable Housing Scheme)

(I) Facts of the Case:

Brief Description on Section 80-IBA of Income Tax, 1961 (Housing For All) Scheme.

(II) Analysis :

Provisions of Section 80- IBA of Income Tax Act, 1961:

(1) Deduction of 100% profits to Affordable Housing Projects:

    • Where the gross total income of an assessee includes
    • any profits and gains derived from the business of developing and building housing project,
    • there shall be allowed a deduction of an amount equal to
    • 100% of the profits and gains derived from such business(ir-respective of number of years in which profit is derived from such housing projects)

i.e deduction will be allowed from the sale of flats and flats can be sold at anytime as there is no limitation on selling period.

But, point to be noted the above profit will subject to MAT (Minimum Alternate Tax) & AMT (Alternate Minimum Tax)

Affordable Housing Scheme

The provisions of Minimum Alternate Tax u/s 115 JB or Alternate Minimum Tax u/s 115JC, depending on the status of the assessee, will be applicable on the profits of the housing project which is eligible for deduction under section 80- IBA.

For Example:

Related Query: Will deduction be allowed if?

Project completed within 5 years
Flats sold after 10 years

Solution: Yes, because there is limit on completion of project and not on sale of flats of project, and so flats can be sold at anytime.

However, liable for MAT/ AMT as applicable depending on the status of   the  assessee.

(2) (a) Conditions for claiming deduction u/s 80IBA: (If the project is approved on    or Before 01-09-2019)

 

(a)  Approval Duration :

  • The project must be approved by competent authority (1) after 01-06-2016 but on or before 31-03-2019 (Extended to 31-03-2020 by Finance Act, 2019)
  • Where the approval in respect of a housing project is obtained more than once, the date of first approval should be taken as the date of approval of the project.
(b) Completion Period :
  • The project must be completed within a period of five years from the date of approval by the competent authority.
  • The project shall be deemed to be completed where the certificate of completion of project as a whole is obtained from competent authority in writing.
(c) Commercial Establishments: 
  • The shops and commercial carpet area cannot exceed 3 % of total carpet area (2) of the project.
(d) Minimum Size of Project:

 

  • >=1,000 sq. meters where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai  or
  • >=2,000 sq. meters where the project is located in any other place.
(e) One and Only One: 
  • The project is the only housing project(3) on the plot of land as specified in clause (d).
(f) Residential Unit Size:
  • <30 sq. meters, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or
  • < 60 sq. meters, where the project is located in any place.
(g) Allotment of Units:
  • If an individual is allotted a residential unit (5) in the project, no other unit shall be allotted to the ;
  • same individual
  • spouse of the individual
  • minor children of such individual.
(h) Project Utilization of Floor Area Ratio:
  • >= 90% of the floor area ratio(6),permissible in 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, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai or
  • >= 80% of the floor area ratio, where such project is located in any place other than as referred in above.
(i) Accounts:
  • The assessee should maintain separate books of accounts in respect of the housing project

(2) (b) Conditions for claiming deduction u/s 80IBA: (If the project is approved on    or After 01-09-2019) 

 

(a) Approval Duration :

  • The project must be approved by competent authority (1) after 01-06-2016 but on or before 31-03-2019 (Extended to 31-03-2020 by Finance Act, 2019)
  • Where the approval in respect of a housing project is obtained more than once, the date of first approval should be taken as the date of approval of the project.
(b) Completion Period :
  • The project must be completed within a period of five years from the date of approval by the competent authority.
  • The project shall be deemed to be completed where the certificate of completion of project as a whole is obtained from competent authority in writing.
(c) Commercial Establishments: 
  • The shops and commercial carpet area cannot exceed 3 % of total carpet area (2) of the project.
(d) Minimum Size of Project:

 

  • >=1,000 sq. meters where the 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);  or 
  • >=2,000 sq. meters where the project is located in any other place.
(e) One and Only One: 
  • The project is the only housing project (3) on the plot of land as specified in clause (d).
(f) Residential Unit Size:
  • <60 sq. meters, where the 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);  or
  • < 90 sq. meters, where the project is located in any place.
(g) Value of Residential Unit
  • the stamp duty value(4) of a residential unit in the housing project does not exceed Forty – Five lakh rupees.
(h) Allotment of Units:
  • If an individual is allotted a residential unit (5) in the project, no other unit shall be allotted to the ;
  • same individual
  • spouse of the individual
  • minor children of such individual.
(i) Project Utilization of Floor Area Ratio:
  • >= 90% of the floor area ratio (6), permissible in 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, where the 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);  or
  • >= 80% of the floor area ratio, where such project is located in any place other than as referred in above.
(j) Accounts:
  • The assessee maintains separate books of accounts in respect of the housing project

There is some differences in Approval taken before 01.09.2019 and on or after 01.09.2019 due to which the condition for claiming deduction under section 80IBA Varies.

** References for sub -section 2 of section 80IBA:

(i) “competent authority “ means the authority empowered to approve the business plan by or under any law for the time being in force.
(ii) “carpet area” shall have the same meaning as assigned to it in clause (k) of section 2 of the Real Estate (Regulation and Development)Act ,2016 [16 of 2016].

i.e

  • the net usable floor area of an apartment .
  • excluding the area covered by the external walls , areas under service shafts , exclusive balcony or verandah  area and exclusive open terrace area, but
  • includes the area covered by the internal partition walls of the apartment. 
(iii) “housing project” means a project consisting predominately of residential units with such other facilities and amenities as the competent authority may approve subject to the provisions of this section.
(iv) “stamp duty value” means the value adopted or assessed or assessable

  • by any authority of the Central Government or a State Government
  • for the purpose of stamp duty in respect of an immovable property.

For Example:

Project approved on or after 01/09/2019
Stamp duty Value of a residential unit Rs. 50,00,000
In this case,

Since the project is approved on or after 01.09.2019 and the stamp duty value of a residential unit of a housing project exceeds Rs 45, 00,000.

So, the condition as stipulated in clause (g) of sub- section (2) of Section 80-IBA [as inserted by Finance Act, 2019]

is not satisfied and therefore the deduction u/s 80 – IBA would not be applicable for whole project.

 

(v) “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 an interior door in a shared hallway and not by walking through the living space of another household.
(vi) “ 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.

i.e

Floor Area Ratio (FAR) =

Total covered area on all floors in Housing Project × 100

Plot of Land

For Example (Housing Project in Delhi)

Area of plot of land (sq. meters) 1200
No of buildings in housing project (no.) 4
No of floors in each building (no.) 4
Area of each floor (sq. meters) 70
In this case,

the total covered area of plinth area on all the floors would be 4*4*70 =1,120 sq. meters, and the floor area ratio would be 0.933 (1120 sq. meters/ 1200 sq. meters).

So, here condition of FAR is satisfied.

 

Housing Project as a works contr

(3) Housing Project as a works contract:

  • No deduction under this section shall be allowed to an assessee
  • who executes the housing project as a works-contract awarded by any person (including the Central Government, or the State Government).

(4) Consequential Effect if project not completed within time:

  • Where the housing project is not completed within a period of Five years from the date of approval by the competent authority as specified under clause (b) of sub – section 2 and
  • in respect of which a deduction has been claimed and allowed under this section
  • 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 gain of business or profession” of the previous year in which the period for completion so expires.

(III) Conclusion:

Section 80-IBA provides the tax holiday period to the real estate sector engaged in the Affordable Housing Scheme irrespective of the number of the years in which the flats constructed under the scheme are sold subject to other conditions as stipulated above.

But, it is to be noted that the project must be completed within the duration and completion certificate to be obtained from the competent authority for project as a whole as stipulated (i.e. 5 years) from the date of approval of the project, otherwise, the profits claimed as deduction in earlier years would be added to the profits of the financial year in which the condition of clause (b) of  sub-section (2) of Section 80- IBA of Income Tax Act, 1961 breaches.

However, above profits would be subject to the provisions of MAT/ AMT depending on the status of the assessee as applicable.

In brief, this section provides momentum to the Infrastructure Sector for promoting the Housing for All Scheme.

(IV) 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.

Author Bio

Qualification: CA in Practice
Company: Surana Vishesh & Associates
Location: Guwahati, Assam, IN
Member Since: 12 Apr 2020 | Total Posts: 2

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