Section 80-IBA Affordable Housing Scheme: Analysis of Section, FAQs, Relevant Case Laws and Updated with Finance Act 2020

Navin Agicha

Section 80-IBA Affordable Housing Scheme: Analysis of Section, FAQs, Relevant Case Laws and Updated with Finance Act 2020

This article will cover in depth details of conditions to be satisfied before availing deduction under section 80- IBA alongwith some FAQs and relevant case laws

section 80IBA – 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 projects, there shall, subject to the provisions of this section, be allowed, a deduction of an amount equal to hundred per cent (100%) of the profits and gains derived from such business.

Conditions to be satisfied by such housing projects :

The housing project must satisfy the following conditions to claim benefit under this section.

1. The project must be approved by competent authority after 01-06-2016 but on or before 31-03-2021 (Amended by Finance Act, 2020).

Please note that 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.

2. 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.

3. The carpet area of the shops and other commercial establishments included in housing project cannot exceed 3% of aggregate carpet area

4. If an individual is allotted a residential unit in the project, no other unit should be allotted to the;

• same individual
• spouse of the individual
• minor children of such individual

5. Separate books to be maintained for such project.

6. Condition pertaining to Plot size, area of residential units and utilisation of permissible floor area ratio are as under:

If Project is Approved Prior to 1st September, 2019

Particulars	Metro Cities	Non- Metro Cities
Location	Where project is located within cities of Chennai, Delhi, Kolkata or Mumbai	Where the project is located in any other place
Plot size of land	Plot size of land should not be less than 1000 square metres	Plot size of land should not be less than 2000 square metres
Carpet area of the residential unit	Does not exceed 30 square metres	Does not exceed 60 square metres
Project Utilization of Floor area ratio	Not less than 90% permissible under rules made by Government or local authority	Not less than 80% permissible under rules made by Government or local authority

If Project is Approved On or After to 1st September, 2019

Particulars	Metro Cities	Non- Metro Cities
Location	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)	Where the project is located in any other place
Plot size of land	Plot size of land should not be less than 1000 square metres	Plot size of land should not be less than 2000 square metres
Carpet area of the residential unit	Does not exceed 60 square metres	Does not exceed 90 square metres
Project Utilization of Floor area ratio	Not less than 90% permissible under rules made by Government or local authority	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 (This condition is applicable only if the housing project is approved on or after 1st September, 2019)

Extract Of Section 80-IBA – Deductions in respect of profits and gains from housing projects:

“80-IBA. (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.

(2) For the purposes of sub-section (1), a housing project shall be a project which fulfils the following conditions, namely:—

 (a) the project is approved by the competent authority after the 1st day of June, 2016, but on or before the 31st day of March, 89 [2019]; (This is further proposed to be amended by Finance Act, 2020 till 2021)

 (b) the project is completed within a period of five years from the date of approval by the competent authority:

Provided that,—

 (i) where the approval in respect of a housing project is obtained more than once, 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; and

 (ii) the project shall be deemed to have been completed when a certificate of completion of project as a whole is obtained in writing from the competent authority;

 (c) the carpet area of the shops and other commercial establishments included in the housing project does not exceed three per cent of the aggregate carpet area;

 (d) the project is on a plot of land measuring not less than—

 (i) one thousand square metres, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai; or

 (ii) two thousand square metres, where the project is located in any other place;

(e) the project is the only housing project on the plot of land as specified in clause (d);

(f) the carpet area of the residential unit comprised in the housing project does not exceed—

 (i) thirty square metres, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai; or

(ii) sixty square metres, where the project is located in any other place;

(g) 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;

(h) the project utilises—

 (i) not less than ninety per cent 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, where the project is located within the cities of Chennai, Delhi, Kolkata or Mumbai, or

(ii) not less than eighty per cent of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (i); and

 (i) the assessee maintains separate books of account in respect of the housing project.

Following proviso shall be inserted after clause (i) of sub-section (2) of section 80-IBA by the Act No. 23 of 2019, w.e.f. 1-4-2020 :

Provided that for the projects approved on or after the 1st day of September, 2019, the provisions of this sub-section shall have effect as if for clauses (d) to (i), the following clauses had been substituted, namely:—

“(d) the project is on a plot of land measuring not less than—

  (i) one thousand square metres, where such 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

(ii) two thousand square metres, where such project is located in any other place;

 (e) the project is the only housing project on the plot of land as specified in clause (d);

 (f) the carpet area of the residential unit comprised in the housing project does not exceed—

(i) sixty square metres, where such 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

(ii) ninety square metres, where such project is located in any other place;

(g) the stamp duty value of a residential unit in the housing project does not exceed forty-five lakh rupees;

(h) 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;

 (i) the project utilises—

(I) not less than ninety per cent 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, where such 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

(II) not less than eighty per cent of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (I); and

(j) the assessee maintains separate books of account in respect of the housing project.”

(3) Nothing contained in this section shall apply to any assessee who executes the housing project as a works-contract awarded by any person (including the Central Government or the State Government).

(4) Where the housing project is not completed within the period 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 gains of business or profession” of the previous year in which the period for completion so expires.

(5) 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.

(6) For the purposes of this section,—

(a) “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).

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

 (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 residential units with such other facilities and amenities as the competent authority may approve 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 an interior door in a shared hallway and not by walking through the living space of another household.

Following clause (f) shall be inserted after clause (e) of sub-section (6) of section 80-IBA by the Act No. 23 of 2019, w.e.f. 1-4-2020 :

(f) “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 payment of stamp duty in respect of an immovable property.”

FAQs ON SECTION 80IBA

1) When 1 residential unit is allotted to an individual and can second be transferred to parents and major children?

Solution:– Yes, because condition is only for the individual himself/herself or the spouse or the minor children of such individual.

2) Whether deduction under section 80-IBA will be eligible for dwelling or duplex units or row houses?

Solution: – Section 80-IBA clearly mentioned the definition of residential house property, which state that the residential house property means an independent housing unit with separate facilities for living, cooking and sanitary requirements, distinctly separated from other residential units within the building.

Dwelling or duplex units or row houses are satisfying the conditions stated above and hence they are eligible for deduction under section 80-IBA.

3) Whether the residential property having carpet area of 80 square metres will be eligible for deduction under Section 80-IBA?

Solution: – Assuming in the given case, the project is approved on or after to 1st September, 2019. As the conditions for availing the deduction under Section 80-IBA is clearly stated that, the carpet area of residential property shall not exceed 60 square metres in case 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 square metres where the project is located in any other place.

Therefore, in the given case since the carpet area is of 80 square metres the deduction under section 80-IBA will be allowed only if residential property is situated in other places.

4) Suppose Plot of land is too much big, will it be possible that multiple projects can be made on that plot of land?

Solution:- There should be one project on single plot of land and that should also be housing project, as per clause (d) of sub-section (2) of section 80IBA, the project is the only housing project on the plot of land as specified in clause (d);

5)  What if project is not completed within 5 Years?

Solution:- 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.

6) Project is completed within 5 years but Flats are sold after 10 years, will deduction be allowed?

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

7) When 1 residential unit is allotted to an individual and can second be transferred to parents and major children?

Solution: – Yes, because condition is only for the individual himself/herself or the spouse or the minor children of such individual.

8) Which date will be considered as completion for housing project?

Solution: – Completion date will be date when a certificate of completion of project as a whole is obtained in writing from the competent authority.

9)  Who will give Completion Certificate?

Solution: – the authority empowered to approve the building plan by or under any law for the time being in force, i.e. Local Authority.

As per some case laws Architect can also give.  But in maximum cases Certificate from local authority will be considered as date of completion.

10) One person is making housing project for another person, will deduction be allowed?

Solution: – No, Section 80IBA is housing project for general public not for personal purpose. It will be considered as works contract, and works-contract awarded by any person (including the Central Government or the State Government) will not be allowed as deduction.

11) If in case the permission of the project is taken after 1^st June, 2016 but due to some problem the project was not able to start and therefore it was scrapped and a new revised permission is taken from the competent authority, can assessee will be eligible to claim the deduction under section 80-IBA?

Solution: – Section 80-IBA clearly states that the project must be approved by competent authority after 01-06-2016 but on or before 31-03-2020 and 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.

In the given case, since the approval is taken twice for the same project, the date of approval will be considered as first approval date which is after 01^st June, 2016 and therefore the assessee will be eligible for deduction under section 80-IBA.

Few FAQ’s Based on Section 80IB(10) which may be still relevant for Section 80IBA.

1) Projects approved as housing project, but there are some commercial user which is permitted is in the residential units, Will Deduction u/s 80IBA will be allowed?

Solution: – Yes, as per Case Law CIT Vs M/s Veena Developers (Supreme Court of India), The project is predominantly housing, residential project but the commercial activity in the residential units is permitted, Deduction will not be denied.

Related Case Law: Raviraj Kothari Punjabi Associates Vs Deputy Commissioner of Income-tax (ITAT Pune) .

2)  Where issue of Completion Certificate is delayed by Municipal Authority, Will deduction be allowed?

Solution: – as per Gera Developments Pvt. Ltd Vs JCIT (ITAT Pune).

Deduction U/s. 80IB(10) cannot be denied for mere delay in issue of completion certificate by Municipality .

Related Case Law: M/s. Satish Bora and Associates Vs ACIT (ITAT Pune).

3)  Will deduction be allowed on additional income declared u/s 132(4)?

 Solution: – As per Case Law: Malpani Estates Vs ACIT (ITAT Pune).

Deduction U/s. 80-IB(10) available on additional income offered u/s 132(4) in return filed u/s 153A .

4)  Will Deduction be disallowed if assessee follows ‘Project completion method’ instead of ‘Percentage completion method’?

Solution: – As per Case Law: Commissioner of Income Tax Vs Satadhar Enterprises. (Gujarat High Court at Ahmedabad)

Deduction u/s 80-IB(10) can’t be denied merely because Assessee uses “Project completion method”

5) Is it necessary that Ownership of land is necessary to claim deduction u/s 80 IBA?

Solution: – As per Case Law: Commissioner of Income-tax Vs Prathama Developers (Gujarat High Court)

Ownership of land not must to be eligible for deduction u/s. 80-IB(10)

Related Case Law: Commissioner of Income-tax, Ahmedabad -IV Vs Mahadev Developers (Gujarat High Court).

Related Case Law: Commissioner of Income tax Vs Sanghvi and Doshi Enterprise (Madras High Court) .

Related Case Law: Deputy Commissioner of Income-tax, Circle 3(3), Hyderabad Vs Vertex Homes (P.) Ltd. (ITAT Hyderabad).

6) If expenses incurred to earn income on which assessee claimed deduction u/s 80IBA is disallowed by AO, Can Deduction u/s 80IBA in respect of disallowed expenses will be allowed?

Solution: – As per Case Law: Deputy Commissioner of Income-tax Vs Magarpatta Township Development & Construction Co. (ITAT Pune).

Deduction U/s. 80IB allowable on expenses disallowed by AO .

7) Can Business loss u/s 80IBA can be adjusted against other income?

Solution: – As per Case Law: Assistant Commissioner of Income-tax Vs Sterling Developers (P.)Ltd. (ITAT Bangalore)

Loss of Eligible Business Unit u/s. 80IB(10) can be set off against other business income .

8) If Assessee is following % Completion method, will deduction will be on propionate basis?

Solution: – As per Case Law: Kura Homes (P.) Ltd. Vs Income-tax Officer, Ward-2(1) (ITAT Hyderabad)

Sec. 80-IB(10) -If profit is taxed on POCM method, deduction to be allowed on same method.

Related Case Law: Keerthi Estates (P.) Ltd. Vs Deputy Commissioner of Income-tax (ITAT Hyderabad)

Developer following percentage completion method entitled to deduction u/s. 80-IB(10).

9)  Will deduction u/s 80IBA be allowed for area which is not authorized under approved housing project?

Solution: – As per Case Law: Income-tax Officer, Ward 4(3), Bangalore Vs Mahaveer Calyx (ITAT Bangalore)

Deduction u/s. 80-IB(10) cannot be denied for unauthorised excess construction

10) Will deduction u/s 80IBA be denied for delay in permission for business?

Solution: – As per Case Law: Commissioner of Income-tax – IV Vs Tarnetar Corporation (Gujarat High Court)

Deduction u/s. 80-IB(10) cannot be denied for mere delay in permission for business.

11) Will deduction U/s 80IBA denied even though all conditions of 80IBA are complied?

Solution: – As per Case Law: CIT  V/s. Mystic Investments

80-IB(10) – Exemption cannot be denied if Assessee complied with conditions.

(Author can be reached at agicha.navin@gmail.com)

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Republished with Amendments