Affordable homes may get tax boost

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SummaryAffordable housing sector may get a fillip in the Union Budget for 2013-14 as the finance ministry is favouring some of the proposals made by the housing and urban poverty alleviation ministry for extending income-tax breaks for investors in this business.

Affordable housing sector may get a fillip in the Union Budget for 2013-14 as the finance ministry is favouring some of the proposals made by the housing and urban poverty alleviation ministry (HUPA) for extending income-tax breaks for investors in this business. These proposals include infrastructure status for the housing sector under Section 80-IA of the Income Tax Act and a one-year extension of the tax relief under Section 80-IB of the IT Act, government sources said.

Currently, there is a 10-year tax holiday on profits under section 80-IA for infrastructure companies developing roads, highways, ports, bridges, water supply projects, power plants, industrial parks, special economic zones and for providers of telecom and domestic satellite services.

Inclusion of affordable housing in the infrastructure definition could attract more investments into this business.

Housing companies, like other corporate taxpayers, however, will have to pay an 18.5% minimum alternative tax (MAT) on their book profits if the tax liability is found to be less than this threshold due to tax breaks.

Confirming the same, HUPA minister Ajay Maken told FE, “We are being told that the finance ministry is favouring (these proposals). We have learned that the finance ministry has also written to the RBI (Reserve Bank of India) for considering restructuring of loans which have been declared as NPAs (non-performing assets) because of delays in statutory clearances where a developer is not at fault and hence should not be termed as NPAs.”

Under 80-IB (10), a taxpayer is entitled to 100% deduction while calculating the taxable income from a housing project that is for the benefit of the middle and lower classes. This provision currently is available for projects approved on or before March 31, 2008, and expires on March 31, 2013. HUPA has asked for a one-year extension of the terminal date.

HUPA has also asked for extension of the service tax exemption to all categories of affordable housing projects. This demand may also be accepted by the finance minister, a senior official indicated. Currently, projects under the Jawaharlal Nehru National Urban Renewal Mission, JNNURM, Rajiv Awas Yojana, and affordable housing in partnership and other slum rehabilitation schemes of state governments are eligible for this exemption.

If these demands indeed make it to the budget speech slated to be delivered by finance minister P Chidambaram on February 28, it may go a long way in bridging the urban affordable-housing deficit currently estimated at about 26 million, experts said. Also, the total housing loan outstanding in the country is pegged at about Rs 3.06 lakh crore, of which only about 24% is towards loans up to Rs 5 lakh, which are mostly taken by economically weaker sections and low-income groups.

The establishment of a government-supported Credit Risk Guarantee Fund will facilitate credit enablement of the urban poor as well as flow of institutional finance for affordable housing, HUPA has recommended.

Maken said that government is for active consideration of giving infrastructure status to the sector. Recently, Maken wrote to Chidambaram detailing the issues that need to be addressed in the sector. HUPA has also sought creation of commercial real estate (housing) guidelines by the RBI. Currently, the housing sector under RBI guidelines is treated at par with the commercial real estate category.

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