Tax Holiday For Affordable Housing. Housing For All No Longer A Distant Dream

The current government focuses on upbringing of economically weaker sections by offering a residential unit under the Pradhan Mantri Awas Yojana (PMAY) scheme. In the second phase of PMAY-G (Grameen), during 2019-20 to 2021-22, about 1.95 crore houses are proposed to be delivered. Funding will be a major requirement to achieve the aspirational target and hence it is expected that FDI changes may be brought in for affordable housing which will encourage foreign investments. 

Further, in order to incentivise purchase of affordable houses and to provide impetus to the “Housing for All” objective of the government, following amendments are proposed:

Developers - Tax holiday for developer of affordable housing

- Currently developers can avail deduction of 100 per cent of the profits on affordable housing projects subject to conditions. The projects availing tax holiday period have to be approved on or before 31st March 2019. It is now proposed to include projects approved on or after 1st September 2019. It is unclear whether projects which have received approval from 1 April 2019 – 31 August 2019 would also be eligible for tax holiday period. However, the developer may still have to bear the burden of MAT liability as the benefit is limited to difference between normal tax and MAT.

- Changes have also been made to a few conditions to expand the scope for affordable housing projects approved on or after 1 September 2019:

Projects developed in Bengaluru and Hyderabad and the Delhi National Capital Region (Noida, Greater Noida, Ghaziabad, Gurugram, Faridabad) are also proposed to be included besides the 4 metropolitan cities.

Limits for carpet area of the residential unit is 60 sq mts where project is in metropolitan cities and increased to 90 sq mts where such project is located in any other place.

- It is proposed to restrict tax holiday period where stamp duty value of a residential unit in the housing project does not exceed T 45,00,000. However, market value could be higher than stamp duty value which could create ambiguities for the developer;

The above amendment has been suggested in order to align the definition of “affordable housing” with the definition under the GST Act.

Deduction in respect of interest on loan taken for certain house property

- On purchase of a residential house, deduction of up to C 1,50,000 shall be allowed with respect to interest payable on loan taken from any financial institution. One of the main conditions is that the stamp duty value of the residential house property should not exceed C 45,00,000. The purchaser is also eligible to claim deduction of up to C2,00,000 for self-owned property.; total deduction aggregating to C 3,50,000.

TDS on transfer of immovable property - widening the ambit of consideration

- Under the current tax law, withholding tax @ 1 per cent is applicable consideration for transfer of any immovable property transferor. It is proposed to include club membership fee, car parking fee, electricity or water facility fee, maintenance fee, advance fee or any other charges of similar nature, which are incidental to transfer of the immovable property.

Likely reforms

- The Bill also proposed to introduce Model Tenancy Law as a reform measure to promote rental housing. As the current rental laws in India are outdated and the relationship between the lessee and lessor are not realistically addressed, a need has been identified for introduction of such Tenancy Law.

- Further, the government envisages use of innovative instruments such as joint development and concession mechanisms, for public infrastructure and affordable housing on land parcels held by the central government and central public sector enterprises.

With the introduction of innovative reforms, time-bound policies and liberalising the tax laws, the government is marching towards prioritising development of affordable housing and transparency in real estate industry in a methodical manner. This will encourage the developers to take interest in development of affordable houses, help in meeting growing demands and also reinstate the confidence of the investors with increasing transparency.

The author is Partner, Deloitte India.