Section 142 · Deductions
Section 142 of the Income-tax Act, 2025 — Deduction for Profits and Gains from Housing Projects (Affordable & Rental Housing)
By CA Rajat Agrawal
Updated 04 Jul 2026
Chapter VIII
📜 What the law says — Section 142, Income-tax Act 2025
142. In respect of any tax year, where—
(a) the gross total income of an assessee, includes any profits and gains
derived from the business of developing and building housing projects or
rental housing projects referred to in section 80-IBA of the Income-tax
Act, 1961 (43 of 1961); and
(b) such assessee is eligible to claim a deduction from the profits and gains
derived from such business for such tax year under the provisions of the
said section, as if the said Act had not been repealed,
there shall be allowed, in computing the total income of the assessee, a deduction
from the profits and gains derived from such business, subject to the conditions that—
(i) the amount of deduction is calculated as per the provisions of section
80-IBA of the Income-tax Act, 1961 (43 of 1961); and
(ii) the deduction under this Act shall be allowed only for such tax years, as
would have been allowed under section 80-IBA of the Income-tax Act,
1961 (43 of 1961), as if the said Act had not been repealed.
Special provisions in respect of certain undertakings in North-Eastern States.
In plain language
What Section 142 actually says
Section 142 of the Income-tax Act, 2025 is a transitional (sunset) deduction provision. It does not create a brand-new tax break. Instead, it preserves the benefit that used to be available under Section 80-IBA of the old Income-tax Act, 1961 for developers building affordable housing projects and rental housing projects. In plain words: if a project was eligible for the 80-IBA deduction under the old law, the developer can continue claiming that same deduction under Section 142 of the new Act, computed exactly the way it would have been computed under 80-IBA.
- What it gives: a 100% deduction of the profits and gains derived from the business of developing and building an eligible housing project — effectively making that profit tax-free.
- Mechanism: "incorporation by reference" — the amount and the eligible years are worked out as per the repealed Section 80-IBA.
- Duration: the deduction is available only for those tax years for which it would have been allowed under 80-IBA. It carries forward the old sunset clause; it is not a fresh, open-ended incentive.
Who it applies to
- Real estate developers (individuals, firms, LLPs, companies) whose gross total income includes profits from developing and building housing projects.
- Only projects approved by the competent (municipal/local) authority within the old approval window — after 1 June 2016 and on or before 31 March 2022 for affordable housing; and 1 September 2021 to 31 March 2022 for notified rental housing projects.
- It does not help home-buyers directly — this is a developer/builder deduction on business profits, not a personal deduction like home-loan interest.
Key conditions (inherited from Section 80-IBA)
- Approval & completion: project approved in the eligible window and completed within 5 years of first approval (a completion certificate from the authority is treated as proof of completion).
- Plot size: at least 1,000 sq m in the four metros (Delhi, Mumbai, Kolkata, Chennai) and at least 2,000 sq m elsewhere.
- Carpet area of each residential unit: up to 60 sq m in metros and up to 90 sq m in non-metro locations (these are the revised limits that applied to projects approved on/after 1 September 2017).
- Price cap: for projects approved on/after 1 September 2019, the stamp-duty value of a unit must not exceed ₹45 lakh.
- Commercial space: shops and other commercial units must not exceed 3% of the total carpet area.
- FAR utilisation: at least 90% of the permissible floor area ratio in metros and 80% in other places.
- Single-unit rule: where a unit is allotted to an individual, no other unit in the same project can go to that person, their spouse or minor children.
- Separate books of account must be maintained for the eligible project.
How it interacts with other provisions
- No double deduction: profit already deducted under Section 142 cannot be claimed again under any other profit-linked deduction of Chapter VIII of the 2025 Act.
- It sits alongside the other transitional/industrial-undertaking deductions such as Section 141 (industrial undertakings) which similarly carry old incentives into the new Act.
- The deduction reduces business income computed under the profits and gains of business head; MAT/AMT-type minimum tax considerations under the new law can still apply to companies/other assessees claiming large deductions.
Practical implications
- Claw-back risk: if the project is not completed within 5 years, the entire deduction claimed earlier is reversed and taxed as income in the year the 5-year period ends. Timely completion certificates are critical.
- Because 80-IBA has sunset (no new approvals after 31 March 2022), Section 142 is essentially a legacy/wind-down provision — useful only for pipeline projects approved in the eligible window whose eligible deduction years fall in tax year 2026-27 and around.
- Developers must retain approval letters, completion certificates and separate accounts to survive scrutiny, since the new Act relies on old conditions.
💡 Example
Worked example 1 — affordable housing profit: Shreeji Developers builds an affordable housing project in Jaipur (non-metro) on a 2,500 sq m plot, approved in March 2021, all units under 90 sq m carpet area and each priced below ₹45 lakh. In tax year 2026-27 the eligible project earns a net profit of ₹4 crore. Under Section 142, the deduction is 100% of ₹4 crore = ₹4 crore, so the taxable business profit from this project is reduced to nil. On the ₹4 crore that would otherwise be taxed at, say, a 25% company rate, the saving is roughly ₹1 crore.
Worked example 2 — claw-back on delay: The same firm claimed the ₹4 crore deduction over earlier years but fails to obtain the completion certificate within 5 years of approval. The total deduction of ₹4 crore is then deemed to be income in the year the 5-year window closes and becomes fully taxable — turning an earlier tax saving into a large tax bill.
A short story: Meera, a CA in Jaipur, tells her builder-client not to celebrate the tax-free profit too early. "The 100% deduction under Section 142 is real," she says, "but it is a promise you must keep — finish the project and get the completion certificate inside 5 years. Miss that, and the tax department takes back every rupee of deduction with the profit added back to your income." The builder rushes the paperwork, gets the certificate in year four, and keeps the entire benefit.
| Condition | Metro cities (Delhi, Mumbai, Kolkata, Chennai) | Other locations (non-metro) |
|---|
| Minimum plot size | 1,000 sq m | 2,000 sq m |
| Max carpet area per unit (approvals on/after 1 Sep 2017) | 60 sq m | 90 sq m |
| FAR utilisation required | At least 90% | At least 80% |
| Price cap (approvals on/after 1 Sep 2019) | ₹45 lakh (stamp-duty value) | ₹45 lakh (stamp-duty value) |
| Commercial carpet area | Not more than 3% of total carpet area |
| Approval window (affordable housing) | 1 Jun 2016 to 31 Mar 2022 |
| Completion period | Within 5 years of first approval (else deduction clawed back) |
| Deduction | 100% of profits and gains of the eligible project |
Related sections
Section 141 — Deduction for profits from certain industrial undertakings Section 80-IBA (1961 Act) — Original affordable/rental housing deduction Section 143 — Deductions for other eligible undertakings/businesses Section 26 — Profits and gains of business or profession (charging head) Section 80-IB (1961 Act) — Deduction for profits of certain undertakings
Frequently asked questions
Is Section 142 a new deduction or an old one carried forward?
It is a transitional provision that carries forward the benefit of the repealed Section 80-IBA of the 1961 Act. The deduction amount and eligible years are computed exactly as they would have been under 80-IBA.
How much deduction can a developer claim under Section 142?
A 100% deduction of the profits and gains derived from an eligible housing or rental housing project, effectively making that project profit tax-free, subject to all conditions being met.
Can I still get a fresh approval and claim this deduction today?
No. Section 80-IBA's approval window closed on 31 March 2022, so no new projects can become eligible. Section 142 only preserves the benefit for already-approved pipeline projects whose eligible deduction years fall in the new Act's tax years.
What happens if the project is not completed on time?
If the project is not completed within 5 years of first approval, the entire deduction claimed in earlier years is deemed to be income and taxed in the year the 5-year period expires. Timely completion certificates are essential.
What are the carpet area limits for units?
Up to 60 sq m in the four metros (Delhi, Mumbai, Kolkata, Chennai) and up to 90 sq m in other locations, for projects approved on or after 1 September 2017.
Does Section 142 help home-buyers?
No. It is a business-profit deduction for developers who build affordable and rental housing. Home-buyers get separate benefits such as home-loan interest deductions, not this section.
Do I need to maintain separate accounts for the project?
Yes. Separate books of account for the eligible housing project are mandatory, and you must retain the approval letter and completion certificate to support the claim during scrutiny.
C
CA Rajat Agrawal
Chartered Accountant, EaseValue · Reviewed 04 Jul 2026
This explainer is prepared and reviewed by EaseValue's tax team, based on the text of the Income-tax Act, 2025 (as amended by the Finance Act, 2026).
Disclaimer: This page explains the law in general terms for education and is not professional advice. The Income-tax Act, 2025 takes effect from 1 April 2026; provisions, thresholds and interpretations may change. Please confirm your specific position with our team before acting.
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