Published On: Wed, May 10th, 2017

Tax benefits for Affordable Housing Scheme

apartmentsBy CA Pathik Shah

Accommodation Times Bureau

The Government of India along with the governments of the respective states has taken several initiatives to encourage the development in real estate sector. The Smart City Project, where there is a plan to build 100 smart cities, is a prime opportunity for the real estate companies.

Also the Ministry of Housing and Urban Poverty Alleviation has sanctioned the construction of more affordable houses under the Pradhan Mantri Awas Yojana (Urban) scheme.

Also government has given various benefits under Income tax and Service tax for affordable houses.

Income tax benefit:

  • Deduction in respect of profits from housing projects is available under section 80-IBA of Income tax act.
  • Benefit is available from AY 2017-18 (FY 2016-17)
  • Scheme is available to Individual, HUF, AOP, BOI, company, firm or any other person.
  • Conditions to claim benefits are as follow:

v  Profits should be derived from business of developing and building a housing project. A project should be consisting predominantly of residential units with such other facilities as authority specify.

v  Competent authority has approved project after 1st June, 2016 to 31st march, 2019.

v  Project should be completed within 5 years from date of first approval. Project will be completed only if completion certificate is obtained from authority.

v  Carpet area of shops and other commercial establishment should not exceed 3% of total carpet area.

v  Other Project area criteria is as follow:

Location  of  project Area of plot of land on which project is situated Area of residential units comprised in housing project Utilisation of permissible Floor area ration (FAR)
Chennai, Delhi, Kolkata or Mumbai (within 25 KM Arial distance from city) Not less than 1,000sq. Mtr Not to exceed carpet area of 30 sq meter Not less than 90%
Any other location Not less than 2,000sq. Mtr Not to exceed 60 sq meter Not less than 80%

v  Project should be only housing project on such plot of land.

v  Where residential unit in housing project is allotted to an Individual, no other residential unit in the project should be allotted to family members.

v  Builder need to maintain separate books of account in respect of such housing projects.

v  If person execute project as works contractor awarded by any person (including CG/SG) then no deduction will available under this scheme.

If above conditions are satisfied then builder can claim 100% deduction of profits derived from such project.

  • Deduction should be claimed in return of income.
  • Provisions of Minimum Alternate Tax (MAT) or Alternate Minimum Tax (AMT) are applicable.
  • Reversal of deduction needs to be made, if project is not completed within 3 years from date of first approval and in past years if deduction is claimed then tax to be paid.
  • “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.

Service tax benefit:

Service tax would not be applicable for construction of low cost houses up to a carpet area of 60 square meters per house in a housing project approved by the competent authority under:

  • “Affordable Housing in Partnership” component of the Housing for All (Urban) Mission/Pradhan Mantri Awas Yojana
  • Any housing scheme of a state government

GST benefit:

Government has not yet declared specific exemption for low-cost housing exemption. But on 6th March, 2017 – Urban Development Minister M Venkaiah Naidu has given statement that government will exempt lost cost housing project from GST.

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