3 Major Incentives for developing Affordable Homes

Many developers are curious as to what the PMAY Scheme is and how it can help them in developing Affordable housing projects. What I have inferred is the best way one can utilize the benefits of the scheme without getting into too much of a hassle is to avail these 3 major benefits which are applicable throughout India as on Nov. 2019 irrespective of the state governement.

The Housing for All dream is a wholesome agenda of the Govt. of India and covers a much broader scope than the PMAY Urban & Rural policies of Ministry of Housing and respective state governments. Most of the effective weapons employed by the Govt. in terms of solving the problem of affordability comes in terms of Tax benefits and Loan Incentives. The govt. offers a host of exciting opportunities and schemes, but in general for Private developers seeking least involvement of state govt, the major benefits come from the central government in three major reforms:

1. GST Benefit

Let us be fully clear on the GST Matter – Affordable homes are to be taxed at only 1% GST, provided they come under the new scheme, i.e. launched after 31st march 2019  or previous ongoing projects opting for the new scheme. So from the view-point of someone planning a project at this stage, GST is safely to be considered at 1%.

This is a major impact of almost 4% on the GST rate being available to Affordable Homes. So say a home Costing about 45 Lakhs shall now be 4% cheaper. It creates a difference of a whopping Rs. 180,000/- (One Lakh Eighty Thousand only)

However, there is a set of criteria as enlisted in Notification No. 03/2019- Central Tax (Rate) dtd. 29th March 2019 & FAQs issued. The brief extracts are given below:

  • Benefit of lower rate is provided to affordable residential apartment Under GST. Therefore if some flats in a project are affordable, they will be charged at 1% and the rest at 5%
  • Affordable homes are defined at upto 60 Sqm. Carpet areas in metros and upto 90 sq. m. Carpet area in other cities. (Guwahati falls under non-metro).
  • The price limit to avail 1% GST shall be Rs. 45 Lakhs, excluding maintenance and Stamp duty but including all other charges.
  • TDR shall be applicable on unsold units of landowner (i.e. the part which landowner retains). Normal GST shall be applicable on the part that the landowner sells. The rate of GST will be 18% but limited to 1% or 5% of value of apartment. The liability shall be on the promoter and it shall arise on completion. (TDR itself is a tricky matter and needs to be addressed in a separate post on its own).

2. Benefits under Income Tax Act:

A major boost to developers of affordable homes, this benefit is responsible for many builders to look towards the affordable segment. This policy aims to be a successful supply side intervention to the housing affordability problem. The 100% deductions on profits arising out of Affordable housing projects under Section 80- IBA have been going on for quite some time now, Developers have a scope to reduce cost by upto Rs.100-200 per sq ft based on this rule. There have been interesting and important changes done in 2019 vide “THE FINANCE (No.2) ACT” No.23 of 2019 dtd. 1st August 2019 to the section 80-IBA:

  • The criteria for Flat size has been increased to 90 Sq.M. carpet area in non metros, thus, broadening the scope of affordable housing project.  All the flats in the said project shall have to be less than this size.
  • The cost of flat should not be more than Rs. 45 lakh.
  • The size of the plot should not be less than 1000 sq. m. in Metros and 2000 sq. m in other cities.
  • Approval for the project has to be before 31st march 2020 and completed within 5 years.

3. Benefits for Consumers via PMAY-CLSS Subsidy & Income Tax deductions:

The PMAY-Urban CLSS (Credit Linked Subsidy Scheme) gives CLSS subsidy of upto Rs. 2.67 lakh for buying a new home directly to home buyers. This is mainly a Demand Side Intervention. While some developers like to think that this benefit is solely for the consumers, however this is an important aspect of demand side intervention. The key role of this subsidy is to increase the demand and solve the underlying affordability issue. Tax deductions and subsidy are based upon the eligibility of the first-time buyer and the benefits exceed Rs. 3.00 Lakh or more depending on the tax deductions.

Process to avail CLSS subsidy for first time home buyers

The price of a 2 BHK flat can be reduced by approx 5-8 Lakhs based on the above 3 benefits alone. This can be a major factor to the success of a project.

3 thoughts on “3 Major Incentives for developing Affordable Homes”

  1. Very informative. People relate with affordable housing project will be benefited with your post.
    Please write sonething on tax benefit / subsidy benefit on housing loan.

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