Affordable housing is a key priority for India's urban development, and the Direct Tax Code (DTC) 2025 provides significant tax benefits for developers undertaking affordable housing projects. Section 46(11)(d)(vii) allows deduction of the whole of capital expenditure incurred on specified affordable housing projects. This guide analyses the EWS/LIG/MIG test and compliance requirements for developers.
The Affordable Housing Deduction Framework
Section 46 — Capital Expenditure of Specified Business
Section 46 provides that an assessee, at his option, shall be allowed a deduction of the whole of the capital expenditure incurred, wholly and exclusively, for the purposes of any specified business carried on by him during the tax year in which such expenditure is incurred.
Section 46(11)(d)(vii) — Affordable Housing Project
"Specified business" includes:
"Developing and building a housing project under a scheme for affordable housing framed by the Central Government or a State Government and which is notified by the Board in this behalf in accordance with the guidelines as may be prescribed"
Commencement Date
The project must commence operations on or after 1st April 2011.
The EWS/LIG/MIG Test
Category Definitions
| Category | Rentable Area (Specified Cities) | Rentable Area (Other Cities) |
|---|---|---|
| Economically Weaker Section (EWS) | Up to 25 sq. m. | Up to 30 sq. m. |
| Low Income Group (LIG) | Greater than 25 and up to 50 sq. m. | Greater than 30 and up to 60 sq. m. |
| Middle Income Group (MIG) | Greater than 50 and up to 70 sq. m. | Greater than 60 and up to 85 sq. m. |
Percentage Requirements
The affordable housing units must comprise of at least:
- 30% for Economically Weaker Section (EWS) category
- 60% for Economically Weaker Section (EWS) and Lower Income Group (LIG) categories combined
- 90% for Economically Weaker Section (EWS), Lower Income Group (LIG) and Middle Income Group (MIG) categories combined
Remaining Area
The remaining 10% or less of the total allocable rentable area of the project may comprise of other residential or commercial units.
Specified Cities
Specified cities include:
- Urban agglomerations of Greater Mumbai, Delhi, Kolkata, Chennai, Hyderabad, Bangalore, Ahmedabad
- Districts of Faridabad, Gurgaon, Gautham Budh Nagar, Ghaziabad, Gandhinagar
- City of Secunderabad
Rentable Area
"Rentable area" means the carpet area at any floor level, including:
- Carpet area of kitchen, pantry, store, lavatory, bathroom
- 50% of unglazed verandah
- 100% of glazed verandah
Eligibility Conditions
1. Project Sanction
The project must have prior sanction of the competent authority empowered under the Scheme of Affordable Housing in Partnership framed by the Ministry of Housing and Urban Affairs, Government of India.
2. Commencement Date
The date of commencement of operations of the project shall be on or after 1st April 2011.
3. Minimum Area
The project shall be on a plot of land with a minimum area of one acre.
4. Category Requirements
The project must meet the prescribed percentages of EWS, LIG, and MIG units as specified above.
5. Design Approval
The design, layout and specifications of the project must be approved by the State Government or Union territory Administration or its designated implementing agency.
6. Completion Period
The project must be completed within a period of five years from the end of the tax year in which the project is sanctioned by the competent authority.
7. Notification by Board
The project must be notified by the Board as a specified business.
The Approval Process
Rule 36 — Guidelines for Notification
Rule 36 of the Income-tax Rules, 2026 lays down the guidelines and procedure for notification of affordable housing projects.
Application Filing
- The applicant shall apply for notification of the project in Form No. 18 to Member (IT), Central Board of Direct Taxes, Department of Revenue, Ministry of Finance, New Delhi.
Deficiency Rectification
- If any defect is noticed, a deficiency letter may be served on the applicant
- The applicant shall remove the deficiency within one month from the end of the month in which such deficiency letter is served
- Where the applicant fails to remove the deficiency, the Board may pass an order treating the application as invalid
Board Review
- The Board may call for such details, documents or information
- The Board may issue the notification granting approval or reject the application after recording the reasons for rejection
Withdrawal of Approval
The Board may withdraw the approval if:
- Activities cease
- Activities are not genuine
- Activities violate prescribed conditions
Documentation Requirements
Form 18
Form 18 is the prescribed application for notification of an affordable housing project as a specified business under Section 46(11)(d)(vii).
Books of Account
Separate books of account for capital expenditure must be maintained.
Return Filing
Returns must be filed on time to claim deductions.
Practical Compliance
1. Obtain Project Sanction
- Obtain sanction under the Scheme of Affordable Housing in Partnership
- Ensure the project meets all scheme requirements
2. File Form 18
- File Form 18 with the CBDT
- Ensure the application is complete and accurate
3. Meet Category Requirements
- Ensure EWS, LIG, and MIG percentages are met
- Ensure rentable area limits are complied with
4. Complete Within Five Years
- Complete the project within five years from sanction
- Monitor progress regularly
5. Maintain Separate Books
- Maintain separate books of account for the project
- Track all capital expenditure
Consequences of Non-Compliance
Disallowance of Deduction
If the conditions are not fulfilled or approval is withdrawn:
- The deduction may be disallowed
- Income may be recomputed
- Interest and penalty may be levied
Withdrawal of Notification
If activities cease, are not genuine, or violate prescribed conditions, the Board may withdraw the notification.
Expert Legal Guidance
Anuj Desai & Associates provides comprehensive legal advisory services on affordable housing project deduction. Our direct tax experts help developers understand the eligibility conditions, prepare applications, and navigate the approval process. We assist in Form 18 filing, documentation, and representation before the CBDT.
Disclaimer: This article provides general information and does not constitute legal advice. For specific guidance on affordable housing deduction or any other direct tax matter, please consult qualified legal professionals.
Need Expert Legal Guidance?
Navigating the complex affordable housing project deduction framework requires experienced legal counsel. At Anuj Desai & Associates, we provide comprehensive direct tax advisory services, including:
- Eligibility Assessment: Evaluation of project eligibility
- Form 18 Filing: Assistance with application preparation and filing
- Approval Process: Guidance on the CBDT approval process
- Representation: Representation before the CBDT and other authorities
Contact us for expert legal guidance on your affordable housing matters.