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If you're considering buying an under-construction property, it's important to understand the under construction home loan tax benefits available to you. The Indian Government offers several tax benefits on home loans taken for under-construction properties, especially related to interest payments during the construction phase.
Once the construction is complete and you take possession, you can begin to claim the deductions that apply. These benefits help reduce your taxable income, making your investment more financially viable in the long run.
You can claim tax benefits on the interest paid during the pre-construction phase under Section 24(b) once the construction is complete and possession is taken. The total interest paid during the construction period is divided into 5 equal parts, and one-fifth of it is eligible for deduction each year, making it manageable to claim tax relief. This is a significant home loan tax benefit for under construction property that can help reduce your tax burden over time.
Here’s how you can benefit from them:
Under Construction House Tax Benefits under Section 24(b)
As per the Income Tax Act of 1961, Section 24B allows homeowners to claim a tax deduction of up to ₹2 Lakhs per financial year on the interest paid for a home loan taken to purchase a house. However, this deduction applies only if the homeowner lives in the property during the year, and the property is registered in their name. For under-construction properties, this deduction is not immediately available.
Once the construction is complete and the homeowner takes possession of the property, the tax benefits under Section 24(b) come into effect. The maximum interest deduction allowed per financial year is ₹2 Lakhs. This includes both the interest paid in the current year and one-fifth of the interest paid during the construction period. Therefore, while owning an under-construction home offers significant tax benefits, it's essential to understand the timing and conditions tied to these deductions.
Under Construction House Tax Benefits Under Section 80C
During the under-construction period, no principal amount is paid, so tax benefits under Section 80C cannot be claimed. Tax deductions for the principal repayment can only be claimed once the EMI payments begin, marking the conclusion of the construction phase. At that point, the principal repayment becomes eligible for deduction under Section 80C, which allows homeowners to claim a deduction for the principal amount repaid on the home loan.
Under Construction House Tax Benefits Under Section 80EEA
Introduced from the assessment year 2020-21, Section 80EEA offers additional tax benefits under specific conditions.
To qualify for this deduction, the following criteria must be met:
The taxpayer must be an individual
The individual should not have availed any deduction under Section 80EE
The loan must be for the purchase of a residential house property
The loan must have been sanctioned by a financial institution (such as a bank or housing finance company) between April 1, 2019, and March 31, 2022
The stamp duty value of the residential property must not exceed ₹45 Lakhs
The individual should not own any other residential property on the date the loan is sanctioned
Under these conditions, the taxpayer can claim a deduction on the interest payable on the home loan, with a cap of ₹1.5 Lakhs or the actual interest amount, whichever is lower. This benefit can significantly reduce your taxable income, making it an attractive option for eligible buyers.
During the pre-construction period of an under-construction property, homeowners can still claim a tax benefit for the interest paid on the home loan, even though the property is not yet ready for possession. According to Section 24(b) of the Income Tax Act, you are allowed to claim a deduction on the interest paid during the construction phase. However, the total amount is not available in the year the interest is paid. Instead, the interest can be accumulated and claimed as a deduction once the construction is completed and you take possession of the property.
The home loan under construction tax benefit allows you to deduct the interest paid during the construction phase once the property is completed. This deduction can be claimed over a period of 5 years. The total interest accrued during the pre-construction period is divided by 5, and one-fifth of it can be claimed as a deduction each year, starting from the year you take possession of the property. It is important to note that the maximum deduction remains ₹2 lakh per financial year under Section 24(b), which includes the interest paid in the current year and one-fifth of the accumulated pre-construction interest.
When considering a home loan for an under-construction property, there are several key factors to keep in mind to ensure the process goes smoothly and benefits you in the long run:
Loan Disbursement Process
Lenders typically follow a stage-wise disbursement process for under-construction properties, where funds are released in instalments based on the progress of construction. It’s important to understand this process and how it may affect your repayment schedule.
Interest Rate
Home loan interest rates for under-construction properties can vary. It is advisable to compare rates across different lenders to secure the most favourable terms.
EMI Payments During Construction
While some banks offer the option to pay only the interest during the construction phase, others may require partial principal repayments as well. Make sure you are clear about the payment schedule.
Completion Timeline
Ensure the builder has a clear timeline for completion and possession of the property. Delays in construction can affect your loan repayment and tax benefits.
Property Verification
Before proceeding with the loan, verify the legal standing of the under-construction property. Ensure that the builder has the necessary approvals and the project is registered with RERA (Real Estate Regulatory Authority) to avoid any future issues.
Tax Benefits
Be sure to understand the tax benefits you are eligible for during the under-construction phase and after the property is completed. As mentioned earlier, interest deductions can be claimed only once the property is completed, but pre-construction interest can be claimed in stages.
Documentation and Approvals
Make sure all necessary documents are in place before applying for the loan. These documents typically include proof of identity, address, income, and the builder’s project details.
You can claim tax benefits on the interest paid for a home loan under Section 24(b) once construction is complete. Pre-construction interest can be deducted over 5 years. Principal repayment benefits can be claimed under Section 80C after the construction ends.
During the construction phase, you cannot claim deductions on the principal repayment of the loan under Section 80C. Only the interest paid during this period can be deducted.
You can claim tax deductions on the home loan interest under Section 24(b) after construction is completed. Pre-construction interest is eligible for deduction after possession, divided over 5 years.
The maximum tax benefit you can claim on interest is ₹2 Lakhs per year under Section 24(b) once the construction is completed and possession is taken. This includes both current year interest and one-fifth of the pre-construction interest.
If the construction is delayed, tax benefits on the interest paid during the pre-construction period can only be claimed once possession is taken. However, the overall tax benefits will remain the same once the property is completed.
For self-occupied properties, the maximum interest deduction is ₹2 Lakhs under Section 24(b). For rented properties, you can claim the entire interest paid on the loan, without the ₹2 Lakhs cap, and also claim deductions for property taxes.
Under-construction properties are subject to GST. The rate generally ranges from 5% to 12% depending on the property type. Stamp duty also applies when registering the property.
You can only claim deductions on the principal repayment under Section 80C after the construction is completed and you begin paying EMIs. It is not applicable during the construction phase.
Yes, you can claim tax benefits on the interest paid during the pre-construction period and once construction is complete, as per Section 24(b). Principal repayment benefits under Section 80C are available after possession.
Yes, you can take a home loan for an under-construction property. The loan is usually disbursed in stages based on the progress of the construction.
Under the new tax regime, you cannot claim deductions on home loan interest. If you opt for the old tax regime, deductions on home loan interest under Section 24(b) are available.
Yes, you can claim Section 80EEA benefits if you meet the conditions, including the loan being sanctioned between April 1, 2019, and March 31, 2022, and the stamp duty value of the property not exceeding ₹45 Lakhs.
An under-construction property is subject to GST, typically ranging from 5% to 12%, and stamp duty. You can also claim deductions on the home loan interest once the property is ready for possession.
Yes, you can claim the interest on the home loan paid during the pre-construction period. However, this interest can only be deducted after you take possession of the property, and the total interest paid during the construction phase is divided over 5 years. This helps to reduce your taxable income once the property is ready for possession.
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