What is Section 80IBA of the Income Tax Act?
Section 80 IBA allows for income tax deduction for individuals who have any gains or profits from the business of building and developing housing projects in the affordable housing segment. The amount of deduction with respect to income tax payable by such tax assessees are mentioned in Section 80 IBA of the Income Tax Act, 1961. The key reason for insertion of Section 80 IBA in the Income Tax Act is to incentivise the development of affordable housing for the builders and promoters of these projects.
Who Benefits from Section 80 IBA?
Section 80 IBA and its rules, as mentioned in the Income Tax Act, are applicable to individuals who earn profits or gains through housing project businesses.
Applicability of Section 80IBA to Different Types of Properties
The applicability of Section 80 IBA is subject to some key terms and conditions as follows:
- As per the conditions mentioned in Section 80IBA (2), 100% of the profits and gains derived from the housing projects are tax deductible. However, this deduction is not applicable to an assessee who completes the project as a work contract provided any person including the state or central government.
While the above is applicable to the type of housing project being considered, the following are the criteria for applicability of Section 80 IBA with respect to different types of housing projects:
- The assessee must have the profits and gains derived from the business of building and developing housing projects. For instance, any project that is mainly designed for residential housing units providing essential amenities and facilities to the buyers as the competent or concerned authority may specify
- The concerned authority has approved the housing project after 1st June 2016 but on or before 1st April 2020.
- The tax assessee must complete the project within 5 years from the date of receiving approval from the competent authority. The particular housing project will only be considered as complete when the certificate of project completion as a whole is received in writing from the concerned authorities
- The carpet area of the commercial establishments such as shops within the housing projects should not exceed the limits as prescribed by the authorities of the aggregated carpet area. The following are the qualifying criteria regarding size of the plot, residential units and minimum utilization of the Floor Area Ratio (FAR) for a project to qualify for tax benefits u/s 80 IBA:
| Project Location | Area of Land on Which the Project is Located | Carpet Area of the Residential Units | Utilisation of Permissible FAR |
| Delhi, Mumbai, Kolkata and Chennai | Not less than 1,000 square meters | Not more than 30 square meters | Not less than 90% |
| Project located in locations than the cities listed above | Not less than 2,000 square meters | Not more than 60 square meters | Not less than 80% |
- No residential unit in the housing project will be allotted to an individual, their spouse or minor children if they already have an allotted residential unit in the project.
- The assessee has to maintain a separate book of accounts for the housing project.
Budget 2019 Update of Section 80 IBA
Union Budget 2019 has upheld the applicability of Section 80 IBA thereby promoting the development of affordable housing in India. This section thus effectively provides a tax holiday to developers and builders of affordable housing projects. This along with the additional tax benefit of Rs. 1.5 lakh annually on affordable housing home loans is expected to improve the overall affordable housing situation in both urban and rural India.