This article is written by Harsh Amit Bhatt, pursuing a Certificate Course in Real Estate Laws from LawSikho.com. Here he discusses “Five Income Tax Benefits Available to the Real Estate Sector”.

Introduction

After the historic legislation of RERA Real estate (Regulation and Development) Act, 2016, Came into force the Real Estate sector was struggling to get back on the growth track. As the legislation was fresh and took time to understand legislation and gain confidence in the home buyers. To promote the growth in Real Estate sector government decided to incentivise to the buyers by introducing (PMAY) Pradhan Mantriawasyojana and providing with various tax benefits in the Real Estate Sector to the buyers and the estate owners.

The Following are the Five (5) tax benefits which were recently made available by the government in the Real estate sector:- 

Pradhan MantriAwasYojana

Pradhan MantriAwasYojana (PMAY) is a social welfare program which was launched by our honourable Prime Minister Shri Narendra Modi in the year 2015. This scheme aims to provide affordable housing to 20 million families by 2022. 

There are four components under Pradhan MantriAwasYojana (PMAY) which are as follows.

1. Beneficiary led to individual housing construction or Enhancement (BLC)

• For individuals of the EWS category for own house construction or enhancement. 
• Central assistance of Rs. 1, 50,000

2. Credit linked Subsidiary Scheme (CLSS)

Credit linked subsidiary scheme (CLSS) is one of the components under PMAY yojana where Central Government offers interest subsidiary to an eligible beneficiary.

• Interest subvention subsidiary for economically weaker sections (EWS), Low-income group (LIG) and mid-income group (MIG) for new houses.
• The beneficiaries under economically weaker sections (EWS) and Mid income group (MIG) seeking housing loans would be eligible for an interest subsidy at the rate 6.5% for a tenure of 20 years or during the tenure of loan the net interest subsidiary rate shall be at the discount rate at 9%. The credit link subsidy will be available for loan amount up to  Rs 6,00,000/-
• For mid-income group (MIG) the beneficiaries will get 4% relief on loan up to Rs. 9, 00,000 and 3% for loan up to Rs.12, 00,000.

3. Affordable Housing in Partnership (AHP)

• Central assistance of Rs 150,000 per EWS house in projects where the project has at least 250 houses and 35% houses eligible for EWS category.
• State government/ ULB contributes depending on criteria.

4. “In-Situ” Slum Redevelopment (ISSR)

• Land as a resource with private participation 
• Extra FSI/FAR and TDR if required 
• Central assistance of Rs 100,000 per house 
• Developers to benefit from ‘free sale component’

Section 80IBA under the Income Tax Act

This section 80IBA under income tax act came into effect from 1st April 2017, this section was inserted by the finance act, 2016, 

Deductions in respect of profits and gains from the housing project, where the gross total income of the assessee includes any profits and gains derived from the business of developing of building housing projects, this section shall be allowed a deduction of an amount equal to hundred per cent of the profits and gains derived from such business.

The following conditions shall be fulfilled to get the benefit of this section are as follows:-

• The project approved by the competent authority after 1st June 2016, but on or before 31st March 2019.
• The project shall be completed within 5 years from the date of approval by the competent authority.

Proviso

Wherein the housing project is not completed within 5 years from the date of approval, with respect to deduction which 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 as income of the assessee chargeable under the head ‘Profit and gains of business or profession’ of the year in which the completion so expires.

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Therefore changes in Service Tax shall also be made as under- 

• Housing project under Housing for all (HFA) under Pradhan MantriAwasYojana (PMAY).
• Low-cost housing up to a carpet area of 60 sqmts in a housing project under ‘Affordable housing in partnership’ (AHP) of PMAY.
• Low-cost housing up to a carpet area of 60 sqmts in a housing project under any housing scheme of the state government. Are being exempted from service tax effect from 1st March 2016.

Section 54 of the Income Tax Act

The following section 54 of the Income Tax Act provides exemptions for capital gains arising on transfer of residential house property. 

The intention of section 54 is where a person wants to sell his old residential property wherein he was residing and purchased another house for his residence. In this case, the seller of the house was liable to pay income tax on capital gains arising on sale of the old house then it would be a hardship on him. 

Section 54 provides relief on such transaction made by the selling old property and purchased a new property for a residential house. But there are certain basic conditions which have to be satisfied to obtain the benefit of this section which is as follows.

• In the following section 54 benefits are only available to individual or HUF.
• Being a residential property asset transferred should be a long term capital asset.
• In case of any person wants to obtain the benefits of this section the individual or HUF one year before or after two years of the date of transfer of the old residential flat the taxpayer should acquire or construct a new residential property within the time period of three years. acquisition or construction will be determined from the date of receipt of compensation.

An exemption can be claimed only in respect of one residential house property purchased/constructed in India. If more than one house is purchased or constructed, then exemption under section 54 will be available in respect of one house only. No exemption can be claimed in respect of house purchased outside India. 

With effect from Assessment Year 2020-21, the Finance Act, 2019 has amended Section 54 to extend the benefit of exemption in respect of investment made in two residential house properties. The exemption for the investment made, by way of purchase or construction, in two residential house properties shall be available if the amount of long-term capital gains does not exceed Rs. 2 crores. If assessee exercises this option, he shall not be entitled to exercise this option again for the same or any other assessment year. 

Section 194I of the Income Tax Act  

The following section provides benefits to the tenants of the property. The financial minister Nirmala Sitaraman has presented her first budget on 5th July 2019. Where in the tax on rent is increased from Rs. 1,80,000 to Rs. 2,40,000 for the financial year 2019-2020. Which is beneficial for the people who are residing in a rental basis. The following section states as follows –  

Section 194I- TDS on Rent

• Any entity not being it an individual or HUF responsible for paying of rent is liable to deduct tax under this source.
• The amount of rent which is paid or any amount which has to be paid during the financial year exceeds Rs.1,80,000 then / now increased to Rs. 2,40,000
• TDS threshold for deduction of tax on rent is increased from Rs. 1,80,000 to Rs. 2,40,000 for FY 2019-20 onwards.
• Also, any entity who is subjected to tax audit can also claim deduction under this source.

Types of rents covered under Section 194I – of the Income Tax Act are as follows

• Income from letting out of factory building.
• Rent includes service charges.
• TDS requirement where building and furniture, etc., let out by separate persons
• TDS requirement where rent not payable on a monthly basis
• Charges regarding cold storage facility
• Hall rent paid by an association for use of it
• Payments to hotels for holding seminars including lunch.

Section 28 of the Income Tax Act

In the speech of interim budget given by our financial minister PiyushGoyal on 1st February 2019, provided relief to the builders by waving the tax on unsold inventory by the builders for past two years existing one year. According to the private estimate, approximately6.73 lakhs units are unsold and leavy of tax son such unsold units will prove hardship to the developers and increase the burden of taxation, therefore, the tax on unsold units as specified above was waved. 

Section 28 imposes a tax on profits and gains arises out of the business. Thus, 30% tax on the fair value of tax was charged for unsold stock under this section which was waved in the interim budget which was beneficial to the builders.

After the interim budget, big developers made comments and shared their reliefs stating as under –

“Relaxation of notional rent on unsold inventory to two years will ease the burden on developers, who now have more time to sell their projects,” says Surendra Hiranandani, Founder & Director, House of Hiranandani.

“Considering that unsold inventory is a key concern for developers, the move to extend exemption period for levy of tax on notional rent from one year to two years is also a welcome move,” said ASF Group CMD Anil Saraf.