Housing may get 10-year tax holiday

Subhomoy Bhattacharjee & Parul Gupta

The government is likely to extend the benefit of a 10-year tax holiday to housing projects in the forthcoming Budget in line with the rationalisation of such facility given to core sector projects last year.

As part of the sops to the housing sector, the government is also in favour of relaxing the already-expired April 1, 2001 deadline for commencement of housing projects. The twin benefits will bring housing at par with other infrastructure sectors in terms of Sections 80IA and 80IB of the Income Tax (I-T) Act.

The government had in the last Budget reworked the provisions doing away with the two-tier benefit of a 5-year tax holiday and a deduction of 30 per cent of the profits for the next 10 years. Instead, it had clubbed the benefits under an omnibus 10-year tax holiday.

The justification for the move was that infrastructure projects needed a longer gestation period to become profitable and hence a 30 per cent profit deduction after five years of commencing work did not make sense.

While announcing the policy for the housing sector, the government had stipulated that the tax benefits under Section 80IB of the I-T Act will be applicable to only those housing projects which commenced work before April 1, 2001.

But to ensure that the sops encourage more activity in the sector, the government is keen to extend the applicability of the provision so that projects that are launched now can avail the benefits of the 10-year tax holiday.

The housing industry has been complaining that for "mass housing projects" they get a tax holiday for only four and a half years which is inadequate for completing the projects.

"Considering the time required in planning and executing large housing projects, this time limit should be extended to 10 years," say industry chambers. In addition, they have also cited the slowdown in the economy as a reason for developers' reluctance to undertake such projects.

However, while the housing and real estate industry, strongly supported by the urban development ministry, has provided a long list of demands to the finance ministry, a number of them involve surrendering a substantial amount of direct tax revenue which the latter is finding difficult to reconcile with in a difficult year. This includes the demand to raise the income tax deduction to 50 per cent from the current 30 per cent for investing in housing.

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