Home Loan Tax on Self Constructed Properties

Embarking on the journey of constructing your dream home? Brace yourself for a rewarding experience, not only in the form of bricks and mortar but also as lucrative tax benefits. Read on to unravel the intricacies of taxation on a home loan taken for a self-constructed property. Delve into this insightful guide tailored for Indian citizens and unravel the tax intricacies that come with building your own haven. From benefits to criteria, we're demystifying the tax labyrinth to empower you with financial wisdom. 

Claiming Tax Benefits for Self-Constructed Homes

Constructing your own home comes with a silver lining in the form of substantial tax benefits under the Income Tax Act of 1961. Let's break down the Home Loan Tax Benefits u/S 24, 80C, and 80EE – 

• Section 24(b): Interest on Home Loan

Under Section 24(b), the interest paid on a home loan is eligible for deduction. As of the latest information available, a maximum deduction of ₹2 Lakhs is allowed for a self-occupied property. For a property under construction, the deduction is applicable once construction is complete. 

• Example:

  Consider Mr. Patel, who took a home loan to construct his house. The annual interest on his loan is ₹2.5 Lakhs. Once the construction is complete and he takes possession, he can claim a deduction of ₹2 Lakhs under Section 24(b).  

• Section 80C: Principal Repayment 

Section 80C allows a deduction on the principal repayment of the home loan. As of the latest data, the maximum deduction limit is ₹1.5 Lakhs. This includes the principal repayment for both fully constructed and self-constructed properties. 

Example:

Mrs. Rao, constructing her dream home, repays ₹1.2 Lakhs annually towards the principal. She can claim the entire amount as a deduction under Section 80C, reducing her taxable income by ₹1.2 Lakhs.  

Also Read: Should You Foreclose Your Home Loan?

• Section 80EE: Additional Deduction for First-Time Homebuyers

Section 80EE provides an additional deduction of ₹50,000 on the interest paid for first-time homebuyers. This deduction is over and above the limit specified in Section 24(b). 

• Example:

  Mr. and Mrs. Sharma, first-time homebuyers constructing their house, pay ₹2.5 Lakhs in interest annually. With Section 24(b) providing a ₹2 Lakhs deduction, they can claim an additional ₹50,000 under Section 80EE, resulting in a total deduction of the entire ₹2.5 Lakhs. 

By unravelling these complexities, you, the homeowner, can make informed decisions and reap the maximum benefits on your journey to self-construction. 

To learn more also check out: Here's What You Should Know about Repo-linked Home Loans

Addressing Misconceptions on Tax Benefits for Home Loans

• Section 80C: 

If you've commenced EMI payments before completing your home, no deductions can be claimed for principal repayment until the house is finished. Selling or transferring the property within five years of completion requires reversing and treating claimed deductions as income, even if gifting the property, with no deduction available in the transfer year. 

• Section 24(b): 

Interest deduction on home loans hinges on property use. For up to two self-occupied properties, you can claim up to ₹2.5 Lakhs annually. If construction isn't done within five years from loan inception, this claim is reduced to ₹30,000, emphasising the importance of timely completion for optimal tax benefits. 

Criteria for Availing Tax Benefits on Home Loans for Self-constructed Properties

Understanding the criteria for availing tax benefits is pivotal in optimising your financial gains. Here's a simplified breakdown – 

• Eligibility Criteria: 

To claim tax benefits, ensure the property construction is complete, and possession is taken. Principal repayment and interest deductions are applicable only after obtaining possession. 

• Documentation Requirements: 

Accurate documentation is the key to unlocking tax benefits. Keep records of the loan agreement, payment receipts, possession certificate, completion proof, etc. 

• Recent Updates in Tax Regulations: 

Stay updated on recent changes. As of 2022, the Indian Government extended the deadline for claiming interest deduction under Section 24(b) to five years after possession. 

In the realm of self-constructed homes, tax benefits are the hidden gems awaiting diligent homeowners. Even beyond tax deductions and other benefits, constructing your own property assures you the highest level of customisation. Bajaj Markets is always ready to assist you in achieving this dream with attractive offers and benefits on home loans. Enjoy a high loan amount, moderate interest rates, secure and digitised application process, minimal documentation and more. Save tax and step towards fulfilling your homeownership goals today!