Section 80-IBA of ITA, 1961 : Section 80-Iba: Deductions In Respect Of Profits And Gains From Housing Projects

Explanation using Example

Let's consider a hypothetical scenario where Mr. Sharma is a developer who runs a construction company. In 2017, he embarked on a new project to build a housing complex in Pune, which is not one of the metro cities mentioned (Chennai, Delhi, Kolkata, or Mumbai).

His project received approval from the local municipal authority on July 15, 2017. The project included 100 residential units, each with a carpet area of 55 square metres, well within the 60 square metres limit for non-metro cities. The total carpet area for the commercial shops within the complex was kept to 2% of the aggregate carpet area, complying with the 3% maximum limit.

The plot of land was 2500 square metres, exceeding the minimum requirement of 2000 square metres for non-metro cities. The project was designed to utilize 85% of the permissible floor area ratio, which is more than the 80% requirement for such locations.

Mr. Sharma ensured that each residential unit was sold to different individuals, with no person, their spouse, or minor children owning more than one unit. He also maintained separate books of account for the project.

The project was completed on June 30, 2022, within the five-year completion requirement. Since Mr. Sharma's project met all the conditions laid out in Section 80-IBA of the Income-tax Act, 1961, he was eligible to claim a 100% deduction on the profits and gains derived from this housing project in his income tax returns, thus significantly reducing his tax liability for that financial year.

However, had Mr. Sharma failed to complete the project by July 14, 2022, the deduction claimed in the previous years would have been added back to his income, and he would have had to pay taxes on it in the year 2022.