Section 80-IBA: Deduction from Profits on Housing Projects

The Provisions of Section 80-IBA towards Deduction in respect of Profits and Gains from Housing Projects are given below:

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(1) 100% Deduction of Profit from Housing Projects [Section 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 100% of the profits and gains derived from such business provided the project fulfils the conditions mentioned in section 80-IBA(2).

To help migrant labourers and to promote affordable rental, the Finance Act, 2021 has allowed deduction by inserting sub-section (1A) under section 80-IBA also to such rental housing project which is notified by the Central Government in the Official Gazette and fulfils such conditions as specified in the said notification.

The new sub-section (1A) provides as under:

100% Deduction of Profit the Business of Developing and Building Rental Housing Project [Section 80-IBA(IA)]:

Where the gross total income of an assessee includes any profits and gains derived from the business of developing and building rental housing project, there shall be allowed a deduction of an amount equal to 100%. of the profits and gains derived from such business.

“Rental housing project” means a project which is notified by the Central Government in the Official Gazette under this clause on or before 31.3.2022 and fulfills such conditions as may be specified in the said notification;’

(2) Conditions to be Fulfilled [Section 80-IBA(2)]:

For the purposes of section 80-TBA(1), a housing project shall be a project which fulfils the following conditions, namely:—

(a) the project is approved by the competent authority after 1.6.2016, but on or before 31.3.2022;

(b) the project is completed within a period of 5 years from the date of approval by the competent authority:

(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 3% of the aggregate carpet area;

(d) the project is on a plot of land measuring not less than—

(i) 1000 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai, or

(ii) 2000 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) above; (f) the carpet area of the residential unit comprised in the housing project does not exceed—

(i) 30 square metres where such project is located within the cities of Chennai, Delhi, Kolkata or Mumbai; or

(ii) 60 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 90% 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 80% 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.

(2A) Conditions mentioned in clauses (d) to (i) above have been substituted by the following conditions in respect of projects approved on or after 1.9.2019 [W.e.f. A.Y. 2020-21]

The Finance (No. 2) Act, 2019 has substituted the conditions mentioned in clauses (d) to (i) above by the following conditions given in clauses (d) to (j) below in respect of projects approved on or after 1.9.2019:

(a) the project is on a plot of land measuring not less than—

(i) 1000 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) 2000 square metres, where such project is located in any other place;

(b) the project is the only housing project on the plot of land as specified in clause (d);

(i) 60 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) 90 square metres, where such project is located in any other place;

(d) the stamp duty value of a residential unit in the housing project does not exceed Rs.45,00,000;

(e) 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;

(f) the project utilises—

(i) not less than 90% 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 0% of such floor area ratio where such project is located in any place other than the place referred to in sub-clause (i); and

(g) the assessee maintains separate books of account in respect of the housing project.

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). [Section 80-IBA(3)]

(3) Consequences if the project is not completed within a period of 5 years from the date of approval [Section 80-IBA(4)]:

Where the housing project is not completed within the period specified under section 80-IBA(2)(b) (i.e., 5 years) 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.

(4) Deduction under any other Provisions of the Act Not Allowed if the same is claimed under this section [Section 80-IBA(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.

For the purposes of this section,—

(a) “built-up area” means the inner measurements of the residential unit at the floor level, including projections and balconies, as increased by the thickness of the walls, but does not include the common areas shared with other residential units, including any open terrace so shared;

(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) “carpet area” shall have the same meaning as assigned to in section 2(k) of the Real Estate (Regulation and Development) Act, 2016;

(f) “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. [Section 80-IBA(6)]

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