Introduction
Affordable housing has been a key focus area for the Government of India under its larger mission of “Housing for All.” To encourage real estate developers to contribute to this vision, Section 80-IBA of the Income Tax Act was introduced. This provision allows 100% deductions on profits and gains derived from developing and building certain housing projects, including affordable housing and rental housing projects. In this blog, we’ll explore the essential details, eligibility criteria, and key amendments related to Section 80-IBA.
What is Section 80-IBA?
Section 80-IBA of the Income Tax Act provides tax incentives to developers who undertake affordable and rental housing projects. This section allows a 100% deduction on the profits derived from the development of housing projects that meet the prescribed criteria. It aims to boost the supply of affordable housing and rental housing across the country.
Key Features of Section 80-IBA
- 100% Deduction on Profits: Developers of qualifying housing projects can claim a 100% deduction on profits derived from such projects, reducing their tax liability and encouraging investment in affordable housing.
- Eligible Projects:
- The housing project must be approved by a competent authority between 1st June 2016 and 31st March 2022.
- The project must be completed within 5 years from the date of approval.
- The deduction applies to both affordable housing projects and rental housing projects, the latter being introduced as a special category from assessment year 2022-23.
- Location and Size of the Plot:
- For projects in metropolitan cities (Delhi, Mumbai, Chennai, Kolkata, and their metropolitan regions), the plot of land must measure at least 1,000 square meters.
- For projects in other cities, the plot size must be at least 2,000 square meters.
- Carpet Area:
- The carpet area of each residential unit in a metropolitan city must not exceed 60 square meters.
- In other cities, the carpet area should not exceed 90 square meters.
- Stamp Duty Value:
- The stamp duty value of each residential unit in the housing project must not exceed ₹45 lakh.
Eligibility Criteria for Section 80-IBA
For a housing project to qualify for the deduction under Section 80-IBA, it must meet several conditions, including:
- Project Approval:
- The housing project must be approved by the competent authority within the prescribed timeline—between 1st June 2016 and 31st March 2022.
- Project Completion:
- The project must be completed within 5 years from the date of approval. A completion certificate must be obtained from the competent authority.
- Floor Area Ratio (FAR):
- For projects in metropolitan cities, at least 90% of the permissible FAR must be utilized.
- For projects in other cities, at least 80% of the permissible FAR must be utilized.
- Allotment Restrictions:
- No individual, along with their spouse or minor children, can be allotted more than one residential unit in the project.
- Separate Books of Account:
- The assessee must maintain separate books of account for the housing project to claim the deduction under Section 80-IBA.
Special Provisions for Rental Housing Projects
From the assessment year 2022-23, the scope of Section 80-IBA was expanded to include rental housing projects. These projects must be notified by the Central Government and adhere to specific conditions laid out in the notification. Just like affordable housing projects, developers of rental housing projects can also claim a 100% deduction on profits derived from such projects, provided they meet all the stipulated criteria.
Amendments to Section 80-IBA
Since its introduction, Section 80-IBA has seen several key amendments to make it more inclusive and aligned with the changing needs of the housing sector. Some of the notable amendments are:
- Finance Act, 2017:
- Extended the completion timeline for housing projects from 3 years to 5 years.
- Changed the measurement criterion for residential units from built-up area to carpet area, as defined under the Real Estate (Regulation and Development) Act, 2016.
- Finance Act, 2020:
- Extended the deadline for project approval to 31st March 2021.
- Further amendments in 2021 extended this deadline to 31st March 2022 to incentivize more affordable housing projects.
- Finance Act, 2021:
- Introduced provisions for rental housing projects, allowing developers to claim deductions for profits derived from such projects as well.
Judicial Precedents
In a notable case, CREDAI-BANM v. Union of India (2023), the Bombay High Court ruled that no writ of mandamus could direct the legislature to extend the timeline for availing deductions under Section 80-IBA. The court emphasized that decisions to extend such timelines fall within the domain of the legislature.
Non-Compliance and Reversal of Deduction
If a housing project is not completed within the stipulated 5-year timeline, any deduction claimed under Section 80-IBA will be reversed. The amount of deduction will be added back to the income of the assessee and taxed under the head “Profits and Gains of Business or Profession” in the year when the period for completion expires.
FAQs
Q1. Can I claim a deduction under Section 80-IBA if my project is approved after March 2022?
No, only projects approved by the competent authority on or before 31st March 2022 are eligible for deduction under this section.
Q2. What happens if my project is not completed within 5 years?
If the project is not completed within the 5-year period, the entire deduction claimed will be added back to your income in the year the timeline expires, and you will be taxed accordingly.
Q3. Is the deduction available for projects outside metropolitan cities?
Yes, the deduction applies to projects outside metropolitan cities as well. The criteria for plot size and carpet area are different but still allow for a 100% deduction.
Q4. What are the benefits for rental housing projects?
Rental housing projects approved by the Central Government and fulfilling specific conditions are also eligible for 100% deductions on profits under Section 80-IBA from assessment year 2022-23 onward.
Conclusion
Section 80-IBA plays a crucial role in promoting the affordable housing sector and, more recently, rental housing. It provides a significant incentive to developers by offering a 100% deduction on profits derived from eligible projects, thereby reducing their tax burden and encouraging investment. Developers and builders looking to benefit from this provision must ensure that their projects meet the prescribed conditions and timelines to maximize the available deductions.
For more insights into deductions under various sections of the Income Tax Act, visit Smart Tax Saver, your go-to source for tax-related advice and updates.
