Sunset clause for housing may get extension

RUN-UP TO THE BUDGET

Budget 2008-09 may bring some good news for housing project developers. Finance Minister P Chidambaram may consider extending the sunset clause for such projects, which is ending on March 31, 2008.

The move may find favour in a bid to stem slowdown in the housing sector.

Under Section 80 IB of the Income Tax Act 1961, profits from housing projects, with a minimum built-up area of 1,000 square feet in cities and 1,500 square feet at any other place, are exempted from tax.

Chidambaram has already indicated banks to reduce interest rates to spur demand for housing loans.

However, he has to address the supply side problem also, according to government sources. Investors in such projects may not be attracted if there is no tax benefit, which could aggravate housing supply situation.

"There is a scope for extending the sunset clause for housing projects in the larger interest of the economy," sources said. Otherwise, the housing sector may slip further into a recession, a government source said.

Another major exemption given under Section 80 IB is related to construction of 100-bed hospitals in rural areas. Profits from such hospitals are exempted from tax for five years if they are built between October 2004 and March 2008.

As hospital facilities in rural areas are still a matter of concern, the tax exemption may find favour for another extension.

The other major sunset clauses that are due to expire in the coming Budget are related to Software Technology Parks of India (STPI), Export Oriented Units (EoUs) and Industrial Parks. All three schemes are coming to an end on March 31, 2009.

With Parliamentary elections to be held some time before May 2009, there will not be any constitutional amendment early next year. If Budget 2008-09 is silent on such schemes, it would tantamount to no extension and such units would pay taxes at applicable rates.

Already there is a perception that the finance ministry is unlikely to extend the schemes further as new software units or industrial units can avail of similar tax benefits in special economic zones. The revenue department has already rejected such proposals from the commerce as well as IT ministry.

Under Section 10A and 10B, STPIs and EoUs enjoy tax holiday till March 31, 2009. If industrial parks are set up by March 2009, they could enjoy income tax exemption for 10 years under Section 80IA.