4 Home Loan Tax Benefits on Under-Construction Property

With property prices having skyrocketed, a majority of people planning to buy a home opt for a home loan. The affordable interest rates on home loans and the easy availability of different types of residential properties have enabled countless people to fulfil their dream of living in their own houses. In addition to making it easier for people to arrange the funds for buying their dream home, these loans also enable them to enjoy tax rebates. 

However, contrary to popular belief, tax benefits are available not only on loans availed for fully constructed and ready-to-move-in properties. Instead, people using a home loan to invest in under-construction properties can also avail of these benefits. The four primary under-construction home loan tax benefit schemes available for prospective buyers include the following. 

Tax Deductions On Under-Construction Property

This tax benefit is offered under section 80 C of the IT Act of 1961 to people using a home loan to invest in a property that is still under construction. According to the provisions of the act, investors can claim a tax benefit of up to Rs. 1,50,000 for each financial year on the principal amount of the home loan paid by them. 

Tax Benefits On Interest Paid Before Obtaining Possession Of Property

This tax benefit can be availed under section 24B of the IT Act of 1961 and is applicable to the interest paid on the home loan. The important thing to understand here is that the tax benefit is offered only for the interest paid for the period between the completion of the construction of the property and granting of possession to the investors. The maximum tax benefit that can be availed through this scheme is up to Rs. 2,00,000 every financial year. 

Tax Benefits On Stamp Duty 

Under section 80C of the IT Act of 1961, people availing of a home loan can claim tax benefits of up to Rs. 1,50,000 in each financial year on the amount paid in lieu of stamp duty and registration charges. However, the investors can claim this benefit only after the construction is complete and they have been granted possession of the property. 

Tax Benefits On Interest In Pre-Construction Period

Section 80 EEA of the IT Act of 1961 allows people to claim tax benefits up to a maximum of Rs. 1,50,000 for every financial year under special circumstances. The conditions that make people eligible to seek this additional benefit include the following. 

• The housing loan was approved between 1st April 2019 and 31st March 2022.
• The value of the stamp duty of the residential property in question is not more than Rs. 45 lakhs. 
• The loan applicants did not own any other residential property on or before the date of approval of the loan.

This tax benefit can be availed by people only after the construction of the said property is complete. 

Other Important Factors To Keep In Mind

Claiming the above tax benefits can help in making the process of buying a home more affordable for people. However, it is important to keep the following important pointers in mind before claiming these benefits. 

• Investors need to provide documentary proof of the amounts paid towards interest and the principal amount of the home loan. It is also the responsibility of the loan applicants to provide details about the construction status of the property to claim the benefits.  

Most properties follow a strict timeline to complete the construction, and hence it is advisable to avail of the various tax benefits during the construction period itself. 

• In the case of the interest paid during the financial year of the home loan can be considered for this tax deduction. 
• Property investors need to understand that all are applicable only on home loans for residential properties. The type of property that the applicants invest in can include independent villas, gated communities, and even an apartment house designed strictly for residential purposes. 
• Finally, property investors need to seek complete details of the various tax benefits available to them and the most effective ways to avail of the same. Consulting a professional real estate taxation expert is highly advisable to ensure that the claim process is commenced in time.   

Conclusion

Availing of the various tax benefits on under-construction properties can provide major financial benefits to loan applicants. It can help reduce their financial burden and mental stress by a significant margin.