Affordable Housing gets Infrastructure Status in Budget 2017

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Our finance minister announced in Union budget 2017 that the Affordable Housing gets Infrastructure status. This statement, by him is considered as most welcoming move towards real estate sector and which is likely to result in increased participation from private players.
This ‘Infrastructure’ status will be mutually beneficial for developers as well as first home buyers. Credit take off towards affordable sector of housing will lead to creation of supply, which would result reduction of market rates of accommodation as well as cheaper funding through various financial institutions. This could be sensed by seeing the allotment of about INR 20000 Cr towards refinancing of individual housing loan by The National Housing Bank and with surplus liquidity created by demonetization, banks have already started reducing their lending rates.

This announcement will further be considered as catalyst for those who were already into real estate sector and also to overcome its sluggish growth since demonetization. As reduction in income tax rate for basic slab from 10% to 5% will harvest more disposable income in hands of tax payer conjointly with various other benefits, would likely promote thrust.
As of for now we have following incentives available for developer as well as buyer inculcating recent changes introduced by Budget 2017-18:

Section 80-IBA: Affordable Housing Scheme / House for All

After section 80-IB of the Income-tax Act, section 80-IBA shall be inserted with effect from the 1st day of April, 2017. The section was inserted by Finance Act, 2016.
  • 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.
  • Approval of Project between : 01/06/2016 to 31/03/2019
  • Project should be completed within 5 years (3 years) of Approval. If approval for more than 1 time than 5 years (3 years) from first approval should be considered.
  • Project was deemed to be Completed when a certificate of completion of project as a whole is obtained in writing from the competent authority.
Non – Metro Cities
Metro Cities*
Within the Jurisdiction any Municipality or Cantonment board
Within a municipal limit or 25 Kms from Municipal limit
Total Area of Project
Not Less than 2000 Square Meter
Not Less than 1000 Square Meter
Each Residential Unit
Does not Exceed 60 Square Meters**
Does not Exceed 30 Square Meters**
Project utilize % Permissible of Floor Area Ratio
Not Less than 80%
Not Less than 90%
Built-up Area of Shop or other commercial establishment
Does not exceed 3% of aggregate built-up area
Does not exceed 3% of aggregate built-up area

*Chennai, Delhi, Kolkata or Mumbai.
** Carpet area of 60 and 30 sq meter would be considered respectively (instead of built up area mentioned before)
  • 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.
  • The Assessee has to maintain separate books of account in respect of housing project.
  • Where the housing project is not completed within the period five year (three year) from date of approval, in respect of which a deduction has been claimed and allowed under section 80-IBA, 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.


Taxable after 1 year of completion certificate for unsold stock

Government had recently announced a tax sops for builders sitting on a huge unsold stocks. Before, the houses which are unoccupied after getting completion certificates were subject to notional rental income. For builders for whom constructed buildings are stock-in-trade, would now be taxed only after one year, from the end of the year in which completion certificate is received so that they get some breathing time for liquidating their inventory.

Key highlights for real estate sector in Union Budget 2017

  • No cash transactions above 3 lakhs. Which can create hindrances for the investors.
  • Indexation for capital gains shifted from 01-04-81 to 01-04-2001 which would help to assess the fair market value more rationally.
  • Holding period for capital gains tax for immovable property reduced from 3 years to 2 years.
  • Abolishment of FIPB in 2017-18, would certainly lead to huge FDI into infrastructure industry.
  • Companies with turnover over upto 50 Cr will now be levied with reduced corporate tax rate of 25%.
  • Window for availing 3-year profit-linked incentives for startups increased to 7 years against 5 years earlier. This means the tax holiday for start-ups is up to 7 years, now!

 Additional deduction of INR 50,000 to first home buyers

A home buyer in India is entitled to claim both the interest and principal components of home loan repayments for tax benefits. Currently interest payable on a ‘self-occupied’ house is subject to a maximum deduction of INR 2 lakhs under the head ‘Income from House Property’.
  • Besides interest, the portion of one’s EMI which goes towards principal repayment is allowed to be claimed under Section 80C. This amount can be claimed within the overall limit of INR 1,50,000 under Section 80C. 
  • First-home buyers availing home loans, will be provided with additional deduction in respect of interest on loan taken for residential house property from any financial institution up to Rs 50,000. This incentive is proposed to be extended to a house property of a value less than Rs 50 lakhs in respect of which a loan of an amount not exceeding INR 35 lakhs has been sanctioned during the period from the April 1, 2016 to March 31, 2017
  • The proposed deduction is over and above the limit of Rs 2 lakhs provided for a self-occupied property under section 24 of the Act.

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