Promoting affordable housing scheme by tax sops to builders & developers
TAX TALK-27.03.2017-THE HITAVADA
TAX TALK
CA. NARESH JAKHOTIA
Chartered Accountant
Promoting affordable housing scheme by tax sops to builders &
developers
Recent amendment proposed in the Finance
Bill 2017 in section 80IBA would further boost the affordable housing scheme.
Query 1]
There is a scheme which gives full tax benefit to the promoter of
affordable housing scheme. Whether the exemption is not available if the more
than one flat is sold to other members in the family like wife, son, daughter,
father, brother etc? There are some changes in the budget in the last week.
What are the changes? If the project is not sold within 2-3 years then how the
exemption can be claimed? Whether the exemption would be available if the flat
is sold after say 8 years? I have read that more than one building cannot be
completed for getting the tax benefit. Is it true? Whether the ownership of
plot of the developer is necessary or even in respect of plot taken on power of
attorney is sufficient. There are lot of restrictions and conditions on
fulfillment of which only the profit is exempt from tax? Please advice the
scheme and the precaution to be taken for availing income tax benefit. [rao2319k@gmail.com]
Opinion:
People usually are the happiest at home- William
Shakespeare
“Housing
for all by 2022”is one of the noble projects of the Government. To make easy
availability of affordable house for the common man, Income Tax Act has
suitably incorporated provision whereby entire profit of the builder &
developer launching affordable housing scheme would be tax free. Deduction is
available under section
80-IBAof the Income Tax Act-1961. It is available to all class of tax payers,
be it individual, HUF, AOP, BOI, company, firm or any other person, if the
following conditions are satisfied:
1. Income is earned
from the business of developing a housing project (i.e., a project consisting
predominantly of residential units with such other facilities and amenities as
the competent authority may specify).
2. The competent
authority has approved the project after 01.06.2016 but before 31.03.2019.
3. Assessee completes
the project within a period of 3 years from the date of first approval by the
competent authority. 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.
4. The built-up area
of the shops and other commercial establishment included in the housing project
does not exceed 3% of the aggregate built-up area.
5. There are
restrictions on the size of the plot, area of residential unites and minimum
utilization of FAR (Floor Area Ratio ) as under:
a] If the Project is located within the cities of Chennai, Delhi, Kolkata or Mumbai (or within the distance, measured aerially, of 25 kilometers from the municipal limits of these cities), (i) plot area should not be less than 1,000 sq. Mtr (ii) Area of residential unit comprised in the housing project should not exceed 30 sq. Mtr (iii) FAR utilization should not be less than 90%
b] If the project is located in any other place other than mentioned in (a) above, (i) plot area should not be less than 2,000 sq. Mtr (ii) Area of residential unit comprised in the housing project should not exceed 60 sq. Mtr (iii) FAR utilization should not be less than 80%.
a] If the Project is located within the cities of Chennai, Delhi, Kolkata or Mumbai (or within the distance, measured aerially, of 25 kilometers from the municipal limits of these cities), (i) plot area should not be less than 1,000 sq. Mtr (ii) Area of residential unit comprised in the housing project should not exceed 30 sq. Mtr (iii) FAR utilization should not be less than 90%
b] If the project is located in any other place other than mentioned in (a) above, (i) plot area should not be less than 2,000 sq. Mtr (ii) Area of residential unit comprised in the housing project should not exceed 60 sq. Mtr (iii) FAR utilization should not be less than 80%.
6. The project is the only housing project on such
plot of land as mentioned above.
7. Where any one 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 spouse or
the minor children of such individual.
8. The assessee should
maintain separate books of account in respect of the housing project.
Amount of deduction:
If the above
conditions are satisfied, 100% of the profit derived from the aforesaid
business is deductible under section 80-IBA. However, deduction is not
available to any assessee who executes the housing project as a works contract
awarded by any person (including the central/state government). When deduction
is allowed under this section, deduction to the extent of such profit is not
available under any other provision of the Act. Deduction has to be claimed in
the return of income, otherwise deduction will not be available.
MAT/AMT applicable:
Though the profit
is eligible for deduction, still the provision of Minimum Alternate Tax (MAT)
or Alternate Minimum Tax (AMT) is applicable. It means that partnership firm
and companies may be liable to pay the tax despite income fully deductible from
income.
Caution:
Provision for reversal
of deduction is there if project is not completed within stipulated time i.e., where
the housing project in not completed within 3 years from the date of first
approval by the competent authority 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 earlier years, shall be deemed to be business income of
the assessee of the previous year in which the period for completion so
expires.
Amendment proposed in the recent Finance
Bill-2017:
There are few
favorable amendments proposed from the AY 2018-19 which would further promote
the scheme of affordable housing. The proposed amendments are as under:
1.
Presently, there is a
restriction of 30 & 60 sq. meter of built up area as mentioned above for
individual units. After the amendment, instead of built up area, carpet area 30
& 60 sq meter will be reckoned. As a result, little higher size of unit
would be possible.
2.
The 30 sq. meter
limit will apply only in case of municipal limits of four metropolitan cities
while for the rest of the country, including in the peripheral areas of metros,
limit of 60 sq. meter will apply.
3.
In order to be eligible, the
period of completion of the scheme is proposed to be extended to 5 years from
existing 3 years criteria.
Coming to few more issues mentioned in
the queries, it may be noted that
1. If project is
completed within 3 years (5 years w.e.f 01.04.2017) but Flats are sold after 3
years, still the deduction u/s 80IBA would be available. There is condition of
3 years (5 years after amendment) for completion of project & not on sale
of flats. It can be sold at anytime.
2. There should be one
project on single plot of land and that should also be housing project, as per
of section 80IBA(2)(d). More than one project in one plot would debar the claim
of deduction u/s 80IBA.
3. More than one unit
cannot be sold to individual himself/herself or the spouse or the minor
children of such individual. There is no such restriction in respect of sale to
major son/daughter, brother, sister etc.
4. In my view,
ownership of land is not mandatory for claiming deduction u/s 80IBA. Even POA
holder can also claim above deduction u/s 80 IBA.
[The author is a practicing Chartered
Accountant from Nagpur. Readers may send their direct tax related queries at
SSRPN & Co
10, Laxmi Vyankatesh Apartment
C.A. Road, Telephone Exch. Square
Nagpur-440008
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