Income Tax 2025

Appearance

Deductions in respect of profits and gains from housing projects ​

142 ​

In respect of any tax year, where––

  • (a) the gross total income of an assessee, includes any profits and gains derived from the business of developing and building housing projects or rental housing projects referred to in section 80-IBA of the Income-tax Act,1961; and

  • (b) such assessee is eligible to claim a deduction from the profits and gains derived from such business for such tax year under the provisions of the said section, if the said Act had not been repealed, there shall be allowed, in computing the total income of the assessee, a deduction from the profits and gains derived from such business, subject to the conditions that—

    • (i) the amount of deduction is calculated as per the provisions of section 80-IBA of the Income-tax Act, 1961; and
    • (ii) the deduction under this Act shall be allowed only for such tax years, as would have been allowed under section 80-IBA of the Income-tax Act, 1961, if the said Act had not been repealed.
Explanation

Section Summary: ​

This section (Section 142) allows taxpayers engaged in the business of developing and building housing projects or rental housing projects to claim deductions on the profits and gains derived from such projects. The deduction is based on the provisions of the now-repealed Section 80-IBA of the Income-tax Act, 1961. The purpose is to continue providing tax benefits to eligible housing projects under the new tax regime, ensuring continuity of incentives for affordable housing development.

Key Changes: ​

  1. Continuation of Deductions: The new law retains the deduction benefits previously available under Section 80-IBA of the Income-tax Act, 1961, even though that section has been repealed.
  2. Eligibility Criteria: The eligibility conditions for claiming deductions remain aligned with the repealed Section 80-IBA.
  3. Timeframe for Deductions: The deduction is allowed only for the tax years that would have been eligible under the repealed Section 80-IBA.

Practical Implications: ​

  1. For Developers and Builders: Taxpayers engaged in affordable housing projects can continue to claim deductions on profits, reducing their taxable income and encouraging investment in housing projects.
  2. Affordable Housing Push: The provision supports the government’s objective of promoting affordable housing by maintaining tax incentives for developers.
  3. Transition to New Law: Developers must ensure compliance with the conditions of the repealed Section 80-IBA to claim deductions under the new law.

Critical Concepts: ​

  1. Gross Total Income: Includes all income earned by the taxpayer, including profits from housing projects.
  2. Section 80-IBA of the Income-tax Act, 1961: This section provided deductions for profits from affordable housing projects, subject to specific conditions like project completion timelines, unit size, and pricing caps.
  3. Repealed Act: The Income-tax Act, 1961, has been replaced by a new law, but certain provisions, like this deduction, are carried forward.

Compliance Steps: ​

  1. Verify Eligibility: Ensure the housing project meets the conditions specified under the repealed Section 80-IBA (e.g., project size, pricing, and completion timelines).
  2. Calculate Deduction: Compute the deduction amount as per the formula and limits prescribed under Section 80-IBA.
  3. Maintain Documentation: Keep records of project approvals, completion certificates, and other relevant documents to substantiate the claim.
  4. File Returns: Report the deduction in the income tax return under the appropriate section.

Example: ​

Scenario: A developer, XYZ Builders, completes an affordable housing project in 2023-24. The project meets all conditions under the repealed Section 80-IBA (e.g., unit size within 60 sq. meters, priced below ₹45 lakhs). XYZ Builders earns a profit of ₹10 crore from this project.

Application of Law: XYZ Builders can claim a deduction of ₹10 crore (or as per the limits under Section 80-IBA) from their gross total income, reducing their taxable income for the year. This deduction is allowed only for the tax years that would have been eligible under the repealed Section 80-IBA.

This section ensures that the tax benefits for affordable housing projects remain intact, providing clarity and continuity for developers under the new tax regime.