To provide an impetus to the housing sector, the Finance Bill, 2021 introduces some amendments aimed at boosting real estate demand and incentivising affordable rental housing.

The Finance Bill, 2021 (Bill) was a fully digital budget in the backdrop of COVID-19. With an aim to help recover the housing market, the Bill proposes several measures with a focus on affordable housing such as extension of sunset clause for obtaining approval to develop affordable housing projects and extension of date for sanction of loan undertaken for affordable housing. Additionally, the Bill also proposes to increase safe harbor limits of certain deeming tax provisions. We discuss some of these developments below.

1.  Incentives for affordable rental housing

Section 80IBA of the Income Tax Act (ITA) provides for a deduction equal to 100% of profits and gains derived from the business of developing and building affordable housing projects. One of the conditions to be fulfilled to claim the deduction is that the project must have been approved by the competent authority on or before 31 March 2021. The Bill proposes to extend the sunset clause for obtaining the approval of the competent authority to 31 March 2022.

The Bill also proposes to allow deduction under section 80IBA for rental housing projects notified by the Central Government in the official gazette.

2.  Extension of date of sanction of loan for affordable housing

At present, Section 80EEA of the ITA provides deduction of INR 150,000 in respect of interest on loan taken for a residential property from any financial institution. This provision was inserted to provide impetus to first-time buyers buying house property with stamp duty value less than INR 45,00,000. To avail the deduction, the loan must have been sanctioned on or prior to 31 March 2021.

The Bill proposes to extend this period to 31 March 2022.

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