How to Claim Home Loan Tax Exemptions on Under Construction Property?

Nowadays, a large number of homebuyers are purchasing under-construction properties. The primary reason being that such properties are more economical as compared to ready-to-move-in properties. If you are looking to purchase an under-construction property, you can consider availing a home loan for the same. Also, do not forget to claim tax benefits on home loan for under-construction properties.

Here’s how you can claim home loan tax benefits on an under-construction property:

In case of home loans for under-construction properties, as per section 24 of the Income Tax Act, 1961, you can claim a deduction up to Rs2 lakhs on the interest payment. Additionally, under Section 80C of the Income Tax Act, 1961, you can claim a deduction up to Rs1.5 lakhs towards the principal amount.

However, it is important to keep in mind that these tax benefits cannot be availed if the home loan payments are made during the pre-construction phase.

When you avail a home loan for an under-construction property, you are entitled to claim deduction on the pre-construction interest, over 5 equal instalments, along with the actual interest deductionas per Section 24 of the Income Tax Act. Pre-construction Interest is applicable from the financial year of home loan disbursal up till the preceding year, when the property’s construction is completed.

In order to avail tax benefits, furnish your bank statements and other relevant documents such as property ownership proof, proof of date of property purchase, certificate of completion of property’s construction, loan agreement, etc.

Tax benefits for under-construction properties cannot be availed in the following scenarios:

• If the loan amount is utilized by the borrower for home renovation, repair, restoration, or reconstruction.
• If you pay off the principal amount during the pre-construction period.
• If you use the loan amount to buy a plot or a piece of land.

Under section 80C of the Income Tax Act, 1961, any amount paid towards registration fees or stamp duty is also applicable for the deduction, even if you haven’t availed a loan. To enjoy this benefit, you must have the house construction completion certificate.

As mentioned earlier, under-construction properties are comparatively cheaper, and hence you won’t have to avail a higher loan amount. Consequently, your home loan EMI will also be reasonable, and thus, you can consider increasing your monthly instalments to reduce the loan tenure. This will help you save on the total interest outgo.

With leading financial institutions, you can avail home loans at attractive interest rates. It is advisable to consider various loan offers provided by different financial institutions before making the final decision. Settle for a lender that offers home loan at a competitive interest rate, less processing fee, and zero hidden charges. In case of any query, you must seek the help of the lender’s representative. This will help you avail the best deal for yourself. Lastly, make sure to read and understand the terms and conditions of the loan agreement carefully before signing it.