CA Umesh Sharma

Arjuna (Fictional character): Krishna, Government of India has taken a major step towards ensuring that people get their own house by introducing Pradhan Mantri Awaas Yojna and changes have been made in Tax laws also. Please tell me elaborately regarding this.

Krishna (Fictional character): Arjuna, in our country there are many people who do not own their own houses. Also there are many people who live in low grade houses because they are financially weak. Continuous efforts are being taken by Government so that people are able to own a house of their own. Likewise to develop and built such houses builders are given tax exemptions and additional benefits. While delivering the Financial Budget, the Finance Minister in his speech told that they are aiming to build 1 crore houses till the year 2019 and for this Rs.23,000 crore have been allotted. To achieve the desired aim and to encourage the builder’s, Government has made appropriate amendments in Income Tax Act and Service Tax. Benefits are also given to people who want to buy their own houses. Government is offering subsidy for interest rate and housing loans. This is called as Affordable housing.

Small House Big Tax Benefit

Image courtesy of siraphat at FreeDigitalPhotos.net

Arjuna: Krishna, what benefits Income Tax is providing for “Small House”?

Krishna: Arjuna, in this year’s Financial Budget, the Finance Minister has proposed on 1st February, 2017 regarding Home is as under:

1) According to Section 80IBA of the Income Tax Act Builders and Developers were getting tax exemptions after complying various Conditions for Housing projects up to house of 60Sq.mtr this Amendment was brought in 2016. The Government this year in order to encourage the Builders and developers have brought in some changes, there was a condition that project must be completed within 3 years which is now increased to 5 years. Similarly for the purpose of calculation “Built up area” was considered but now “Carpet Area” would be considered. Due to which now builders can bring projects of large houses. But in this year “Minimum Alternate Tax” or “Alternate Minimum Tax” would be required to be paid on the book profits.

2) If builders were unable to sale the house then by taking the Notional Rent builders were required to pay the tax, but this has also been amended as  1 year from the  completion of the project no tax would be required to be paid on the Notional rent.

3) In Income Tax there was conflict regarding Capital Gain on property given for development. Now a clarification been issued for this if a property has been given for development and work on it has been finished i.e. completion certificate is received for it, then Stamp Duty value on that date would be considered for the purpose of calculating Capital gain.

4) Under Income Tax Act, tax needs to be paid on profit made by the sale of property i.e. house, flat, etc. Which may be Short term or Long term Capital Gain. More tax needs to be paid on Short Term gain than on Long Term Gain. Earlier to be claimed as Long term Capital gain the asset needed to be held for at least 3 years but now this has been amended to 2 years. That is if asset is held for at least 2 years then less tax would be required to be paid.

5) For the purpose of calculating Capital Gain the Base year 1981 was considered but now the base year for the purpose of indexation is shifted from 1.4.1981 to 1.4.2001 for all classes of the asset including immovable property. This would be beneficial for many people as it would reduce Capital Gain Tax liability significantly.

6) On the purchase of house property if home loan is taken then deduction of the interest is available and also while repaying the loan taken for purchase of house Deduction of principal is available under section 80C.

Arjuna: Krishna what are provisions in VAT regarding house?

Krishna: Arjuna, in VAT there is provision that if house is booked while house is under construction then 1% VAT needs to be paid on Value decided as per “Agreement to Sale” to the builder. But Vat need not be paid on house sold after Completion certificate is received. No other changes took place in the provisions of VAT applicability.

Arjuna: Krishna what are provisions under Service Tax regarding house?

Krishna: Arjuna, for the house up to 60 Sq. meter the builders and developers after following certain conditions no service tax needs to be paid.

Arjuna:  Krishna, What benefits would people receive from the “Pradhan Mantri Awas Yojna”?

Krishna: Arjuna, Government wants everyone should have their own home and for this the following benefits have been given:

1) After taking Loan, subsidy of 6.5% on interest rate would be given for 15 years.

2) To take house under this scheme loan up to Rs. 12 lakhs would be provided.

3) The Government would provide Rs.1 lakh to person taking house under this scheme.

4) A person who is financially weak in urban area would be provided Rs. 1.5 Lakhs for the purpose of construction or renovation of the house apart from above.

5) Builders would be encouraged to develop projects under this scheme by providing special infrastructure loans.

Arjuna: Krishna, What should Taxpayer learn from this?

Krishna: Arjuna, everyone dreams of having a small little house of their own. There are 3 basic necessities of life food, clothes and home to live. To fulfil the basic need of home this is a very good scheme and every citizen should take benefit from this scheme.

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Category : Income Tax (26312)
Type : Articles (15706)
Tags : Budget (1925) Budget 2017 (355) Section 80IBA (8)

One response to “Small House Big Tax Benefit”

  1. prianka murthy says:

    sir,

    i bought a house of 580 carpet, i paid service tax at 4.5%, vat @ 1, registered the property on 1.2.17, applied for sbi home loan, am a lady govt servant. kindly advise how i will benefit with the above taxes. possession ready builders want maintenance from now whether one takes possession or not. please advise.

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