“Housing is absolutely essential to human flourishing. Without stable shelter, it all falls apart.” – Matthew Desmond

With the reduction in the rate of stamp duty, real estate activity started witnessing higher volume & growth in the last couple of weeks. The growth is further backed by the change in the income tax law if there is a variation in the stamp duty rate vs. actual rate of the property on sale by the real estate developers. The tolerance limit has been raised from 10% to 20%. It is coupled with a scheme “Housing for All” which makes income from affordable housing as tax free, by offering 100% deduction towards such income. This is contained in section 80IBA of the Income Tax Act – 1961. Though the provision was already there, certain relaxation was provided by the Finance Act – 2020.  Originally, income tax benefit was available for all projects sanctioned up to 31.03.2019. However, the benefit is now extended for all projects sanctioned up to 31.03.2021.  The prominent features of the scheme with all latest amendment u/s 80IBA are as under:

1. Tax benefit is available to all classes of taxpayers, be it individual, HUF, AOP, BOI, company, firm or any other person. If income is earned out of 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 approve), entire profit will be eligible for deduction u/s 80IBA.
2. All projects sanctioned from 01.06.2016 to 31.03.2021 are eligible for deduction u/s 80IBA.
3. A taxpayer has to complete the project within a period of 5 years from the date of first approval by the competent authority. The project is considered as completed if certificate of completion of project as a whole is obtained in writing from the competent authority. If the map is revised later then the date of first approval would only be relevant for reckoning the period of 5 years.
4. The carpet area of the shops and other commercial establishments included in the housing project should not exceed 3% of the aggregate carpet area.
5. There are restrictions on the size of the plot, area of residential units and minimum utilization of FAR (Floor Area Ratio ) as under:
   a] If 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); (i) plot area should not be less than 1,000 sq. Mtr (ii) Area of residential unit comprising the housing project should not exceed 60 sq. Mtr (iii) FAR utilization should not be less than 90%
   b] If the project is located in any place other than mentioned in (a) above, (i) plot area should not be less than 2,000 sq. Mtr (ii) Area of residential units comprising the housing project should not exceed 90 sq. Mtr (iii) FAR utilization should not be less than 80%.
6. The project is the only housing project on such a plot of land as mentioned above. More than one project in one plot would debar the claim of deduction u/s 80IBA.
7. Where any residential unit in the housing project is allotted to an individual then no other residential unit in the housing project shall be allotted to the (a) individual or (b) spouse or (c) the minor children of such individual.
   [There is no violation if the second unit is allotted to Parent, Brother or Major Children].
8.  The assessee should maintain separate books of account in respect of the housing project.
9. The stamp duty value of a residential unit in the project should not exceed Rs. 45 Lakh.
10.  If the project is completed within 5 years but units are sold after 5 years, still the deduction u/s 80IBA would be available. The condition of 5 years is for completion of the project & not for sale of flats. It can be sold at any time.
11. “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. Further, “Floor Area Ratio” has been explained as the quotient obtained by dividing the total covered area of the plinth area on all the floors by the area of the plot of land. “Housing project” has been defined as 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.

If all above conditions are satisfied, 100% of the profit derived from the aforesaid business is deductible u/s 80-IBA. If the project is not completed within stipulated time period of 5 years as referred above then 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. In my view, ownership of land is not mandatory for claiming deduction u/s 80IBA & even POA holders can also claim above deduction u/s 80 IBA.

Tax policies are often designed to promote the social economic objectives of the Government & it offers an ample opportunity to the taxpayers to save tax by aligning business activities in line with the tax policies of the Government. Considering the recent boom in the real estate sector coupled with the reasonable time period of 5 years for its completion, taxpayers may explore the option of floating affordable housing schemes.

For ease of reference, section 80IBA as well as copy of the press release issued by CBDT on benefit to real estate developer for 20% relaxation is produced hereunder for the benefit of the readers:

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, ³⁷[³⁸[2020]];

 (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:

³⁹[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;

⁴⁰[(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.]

37. “2021” shall be sub. for “2020” by the Act No. 12 of 2020, w.e.f. 1-4-2021. 

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Income Tax relief for Real-estate Developers and Home Buyers

Posted On: 13 NOV 2020 4:17PM by PIB Delhi

As part of the AatmaNirbhar Bharat Package 3.0 as announced by Hon’ble Finance Minister on 12th November, 2020, certain income tax relief measures were brought in for real-estate developers and home buyers.

Up to 2018, section 43CA of the Income-tax Act, 1961 (‘the Act’) provided for deeming of the stamp duty value (circle rate) as sale consideration for transfer of real-estate inventory in the case the circle rate exceeded the declared consideration. Consequentially, stamp duty value was deemed as purchase consideration in case of buyer under section 56(2)(x) of the Act.

In order to provide relief to real estate developers and buyers, the Finance Act, 2018, provided a safe harbour of 5%. Accordingly, these deeming provisions triggered only where the difference between the sale/purchase consideration and the circle rate was more than 5%. In order to provide further relief in this matter, Finance Act, 2020 increased this safe harbour from 5% to 10%. Therefore, currently, the circle rate is deemed to be the sale/purchase consideration for real estate developers and buyers only where the variation between the agreement value and the circle rate is more than 10%.

In order to boost demand in the real-estate sector and to enable the real-estate developers to liquidate their unsold inventory at a rate substantially lower than the circle rate and giving benefit to the home buyers, it has been decided to further increase the safe harbour from 10% to 20% under section 43CA of the Act for the period from 12th November, 2020 to 30th June, 2021 in respect of only primary sale of residential units of value up to Rs. 2 crore. Consequential relief by increasing the safe harbour from 10% to 20% shall also be allowed to buyers of these residential units under section 56(2)(x) of the Act for the said period. Therefore, for these transactions, circle rate shall be deemed as sale/purchase consideration only if the variation between the agreement value and the circle rate is more than 20%.

Legislative amendments in this regard shall be proposed in due course.

 

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