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Tax incentives for Affordable Housing and Affordable Rental Housing Project: Budget 2021

tax-incentives-for-affordable-housing-and-affordable-rental-housing-project-budget-2021

While presenting her third Union Budget 2021, Finance Minister Nirmala Sitaraman echoed ‘Housing for All’ and affordable housing as priority areas of the government.


She further stated that in the July 2019 Budget, she provided an additional deduction of interest, amounting to Rs. 1.5 lakh, for loan taken to purchase an affordable house. 


She proposed to extend the eligibility of this deduction by one more year, to 31st March 2022. The additional deduction of Rs. 1.5 lakh shall therefore be available for loans taken up till 31st March 2022, for the purchase of an affordable house.


Further, to keep up the supply of affordable houses, she proposed that affordable housing projects can avail a tax holiday for one more year – till 31st March, 2022.



She further announced: “We are committed to promote supply of Affordable Rental Housing for migrant workers. For this, I propose to allow tax exemption for notified Affordable Rental Housing Projects.


Tax incentives for Affordable Housing and Affordable Rental Housing Project


In order to incentivise the purchase of an affordable house, It is proposed to extend the eligibility period for a claim of the additional deduction for the interest of Rs. 1.5 lakh paid for the loan taken for the purchase of an affordable house to 31st March 2022.


In order to increase the supply of affordable house, it is proposed to extend the eligibility period for claiming tax holiday for an affordable housing project by one more year to 31st March 2022.


In order to promote the supply of Affordable Rental Housing for the migrant workers, it is also proposed to allow a new tax exemption for the notified Affordable Rental Housing Projects.


The tax incentives on affordable housings are given both to the buyer and the developers of the affordable housings which are discussed below-


Extension of date of sanction of loan for affordable residential house property-For Buyers


The existing provision of the section 80EEA of the Act, inter alia, provides a deduction in respect of interest on loan taken for a residential house property from any financial institution up to one lakh fifty-thousand rupees subject to the condition that the loan has been sanctioned during the period beginning on 1st April, 2019 and ending on 31st March, 2021. There are further conditions that the stamp duty value of residential house property does not exceed forty-five lakh rupees and the assessee does not own any residential house property on the date of sanction of loan. This provision allows deduction to the first time home buyers, in respect of interest on home loan. In order to help such first time home buyers further, it is proposed to amend the provision of section 80EEA of the Act to extend the outer date for sanction of loan from 31st March 2021 to 31st March 2022.


This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.


Incentives for affordable rental housing - For developers


The existing provision of the section 80-IBA of the Act provides that where the gross total income of an assessee includes any profits and gains derived from the business of developing and building affordable housing project, there shall, subject to certain conditions specified therein, be allowed a deduction of an amount equal to hundred per cent. of the profits and gains derived from such business. One of the conditions is that the project is approved by the competent authority after the 1st day of June 2016 but on or before the 31st day of March 2021.



To help migrant labourers and to promote affordable rental, it is proposed to allow deduction under section 80-IBA of the Act 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.


Further, it is also proposed that the outer time limit for 31st March 2021 in this section for getting the affordable housing project approved be extended to 31st March 2022 and same outer time limit be also provided for the proposed affordable rental housing project.


This amendment will take effect from 1st April, 2022 and will accordingly apply to the assessment year 2022-23 and subsequent assessment years.


For this purpose, amendments have been carried out in section 80-IBA and section 80EEA of the Income Tax Act, 1961.


Clause 24 of the Finance Bill, 2021 amends section 80EEA in the following manner:


Amendment of section 80EEA.


24. In section 80EEA of the Income-tax Act, in sub-section (3), in clause (i), for the figures “2021”, the figures “2022” shall be substituted with effect from the 1st day of April, 2022.


Clause 26 of the Finance Bill, 2021 amends section 80-IBA in the following manner:


Amendment of section 80-IBA.


26. In section 80-IBA of the Income-tax Act, with effect from the 1st day of April, 2022,––


(a) after sub-section (1) , the following sub-section shall be inserted, namely:––


“(1A) 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 hundred per cent. of the profits and gains derived from such business.”;


(b) in sub-section (2), in clause (a), for the figures “2021”, the figures “2022” shall be substituted;


(c) in sub-section (6), after clause (d), the following clause shall be inserted, namely:––


‘(da) “rental housing project” means a project which is notified by the Central Government in the Official Gazette under this clause on or before the 31st day of March, 2022 and fulfils such conditions as may be specified in the said notification;’.


Amended provisions of section 80EEA explained


Clause 24 of the Bill seeks to amend section 80EEA of the Income-tax Act relating to deduction in respect of interest on loan taken for certain house property.


The said section, inter alia, provides for deduction in respect of interest on loan taken for a residential house property from any financial institution up to one lakh fifty-thousand rupees subject to the condition that the loan has been sanctioned during the period beginning on 1st April, 2019 and ending on 31st March, 2021. This is subject to further condition that the stamp duty value of residential house property does not exceed forty-five lakh rupees and the assessee does not own any residential house property on the date of sanction of loan.


It is proposed to amend sub-section (3) of the said section so as to provide that the deduction under section 80EEA in respect of interest paid on loan sanctioned by a financial institution for acquisition of a residential house property, shall be available if the loan has been sanctioned during the period beginning on 1st April, 2019 and ending on 31st March, 2022, subject to other conditions specified in the said section.


Amended provisions of section 80-IBA explained


Clause 26 of the Bill seeks to amend section 80-IBA of the Income-tax Act relating to deductions in respect of profits and gains from housing project.


The provisions of sub-section (1) of the said section provide for hundred per cent. deductions of the profits and gains derived from the business of developing and building affordable housing project subject to certain conditions. Further the provisions of clause (a) of sub-section (2) of said section provide that the housing project shall be approved by the competent authority after 1st June, 2016 but on or before 31st March, 2021.


It is proposed to insert sub-section (1A) in the said section so as to provide for hundred per cent. deductions of the profits and gains derived from the business of developing and building affordable rental housing project.


It is further proposed to amend clause (a) of sub-section (2) so as to allow the deduction in respect of profits and gains derived from the business of developing and building housing project for hundred per cent. of the profits and gains derived from the business of developing and building such project approved by the competent authority after 1st day of June, 2016 but on or before 31st March, 2022.


It is also proposed to insert a new clause (da) in sub-clause (6) to define the expression “rental housing project”.


These amendments will take effect from 1st April, 2022 and will, accordingly, apply in relation to the assessment year 2022-2023 and subsequent assessment years.



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