Purchasing a new home is a dream for many, but it can be tough on the pockets as real estate prices are continually increasing. That is why most people opt for home loans to enjoy a smooth process of moving into their new homes, as today, the house loan rates are highly affordable and come with additional benefits. Also, there are several income tax benefits on home loans that one can avail of, making them a popular way to finance the purchase of properties.
Apart from income tax rebates on home loans, another way to reduce the financial burden of purchasing a house of your own is by availing of an under-construction home loan with tax benefits. Investing in an under-construction property can help you retain some cash, as there are a few tax exemptions you can apply for after acquiring the entirely constructed house. Besides, under-construction houses generally quote a lower price than constructed ones.
Here’s how you can avail of home loan tax benefits for under-construction property.
What is Prior Period or Under Construction period?
The prior period or under-construction period refers to the time between the initiation of a house loan and the completion of the property or possession. The property is being built during this phase but not ready for possession or use.
During this period, you cannot deduct the loan interest you pay in this time. However, you can claim this interest in five equal instalments starting from the year of completion or acquisition.
Tax deductions on under-construction property
If you purchase an under-construction property by taking a home loan, you can avail of home loan tax benefits for under-construction property.
Suppose you buy a property that is being constructed and are currently paying the EMIs for the loan. In that case, you can claim tax deductions on the principal amount (up to Rs. 1.5 lakhs) under Section 80C of the Income Tax Act, 1961.
Also, apart from deductions on the principal amount, you can also claim tax benefits on your home loan rate payments.
Additional Read: Can I Claim Income Tax Exemption on Loan Taken for Under-Construction Property?
Tax deductions on interest paid pre-possession of the property
Taking a house loan to purchase your dream home is now more convenient than ever, as you also get exemptions for interest on housing loans under Section 24 of the Income Tax Act. Combined with tax exemptions on the principal amount, a home loan for under-construction property makes your dream house more affordable.
Yes, you can claim deductions on the interest paid on the house loan before possession, albeit after the construction is complete and the property is ready for occupancy. If the construction is still underway or you use the loan to purchase a plot, you cannot claim any exemption for interest on a housing loan. Section 24 also puts a limit on benefits you can claim, and you can only claim an amount of up to Rs. 2,00,000 in this case.
Meanwhile, the interest you pay before possession gets accumulated. Once you claim a tax exemption on this interest, you can reclaim this amount in five installments after the construction is completed. To have an exact estimate of this amount, you can use a home loan EMI calculator online.
Additional Read: Which one is better? Under- Construction or Ready-to-Move-In House
Tax benefits on stamp duty
You can claim an income tax rebate on home loan on the amount paid towards stamp duty and registration charges under section 80C of the ITA. However, the benefit is only available after the construction has been completed and you are in possession of the property.
Additionally, if the property you are purchasing has a stamp duty under Rs. 45 lakhs, you can also avail of a tax deduction of up to Rs. 1.5 lakhs for interest paid on the loan. This provision is available to homeowners under section 80 EEA of the Income Tax Act.
Nowadays, several targeted home loan calculators are available to keep you abreast of all the rates and charges involved in a loan. Therefore, you can stay aware of the costs and choose wisely.
Home Loan Tax Benefit Under Section 24B
Section 24B of the Income Tax Act provides tax benefits on the interest component of the home loans. For a home loan for a ready-to-move-in property, you can claim a deduction of up to Rs. 2 lakhs annually on the interest paid on your home loan.
In the case of under-construction properties, you can claim a deduction on the interest payments made while the construction is ongoing, only once the construction is complete and the property is ready for possession. You can claim this deduction in five equal instalments only after the completion of the property construction.
Once the construction is complete and you’re still repaying the home loan, you can claim tax benefits up to Ra. 2 lakhs in a financial year on the interest repayment, as usual, under section 24B.
These benefits help reduce taxable income, providing significant tax savings for homeowners and making home loans more affordable.
Under Construction House Tax Benefits Under Section 80C
Section 80C allows a deduction of up to Rs. 1.5 lakhs on the principal repayment of home loans for under-construction properties. It further allows the borrower to avail of a tax deduction on the payments made towards stamp duty and registration charges only after the construction of the property is complete. Additionally, if the stamp duty of the property purchased does not exceed Rs. 45 lakhs under section 80EEA, you can also avail of a tax deduction of up to Rs. 1.5 lakh on the interest payment of home loans for under-construction properties.
Under Construction House Tax Benefits Under Section 80EEA
Section 80EEA provides additional tax benefits for borrowers on payments made towards interest repayment during the pre-construction phase if they meet specific criteria.
Under this section, you can claim an additional deduction of up to ₹1.5 lakh on the interest paid on home loans for properties with a stamp duty value of up to ₹45 lakh. This benefit is over and above the ₹2 lakh deduction under Section 24B.
However, to be eligible, the loan must be sanctioned between April 1, 2019, and March 31, 2022. The property should be an under-construction house, and the taxpayer should not own any other residential property at the time of loan sanction. This provision aims to promote affordable housing and ease the financial burden on first-time homebuyers.
Income tax benefit on home loan’s interest in the pre-construction period
As you know, Section 24 of the Income Tax Act allows you tax benefits on interest paid on home loans, but only after the construction is complete. However, home buyers claim benefits on interest paid even in the pre-construction period under special circumstances.
The Section 80EEA of the Income Tax Act allows you to claim a deduction on interest paid on a housing loan up to Rs. 1,50,000 regardless of the restrictions of Section 24, given you fulfil the following conditions:
- Your housing loan was sanctioned during the period starting between 1st April 2019 and 31st March 2022.
- The residential house property’s stamp value does not exceed ₹45 lakh.
- You do not own any residential house property on the date of sanction of the loan.
If you tick all the above boxes, your home loan on the under-construction property will be much more affordable. You would be eligible for income tax benefits on the home loan’s interest even before the construction is complete.
Key Considerations While Availing of an Under-Construction Property Home Loan
Here are some important things you must consider while applying for a housing loan for an under-construction property-
1. Make sure to research the interest rates offered by various lenders and use a home loan EMI calculator to get an idea of EMI payments. This will help you compare various loan offers and choose the one that best suits your needs.
2. It is advisable to choose a suitable loan tenure to ensure smooth repayments. While a shorter tenure will help you save on the total interest payout and reduce the overall cost of the loan, a longer tenure can bring down the EMIs. Assess your financial capacity and use a home loan EMI calculator to opt for a suitable tenure.
3. You must check the lender’s eligibility criteria, including your credit score, before applying for a home loan to ensure seamless approval. This way, if you have a low credit score, you can work on improving it and enhance your chances of loan approval.
Wrapping up
There are various income tax benefits on home loans for under-construction property. So, if you’re planning to construct a home, then make sure to check your home loan eligibility, calculate the EMI with home loan EMI calculator and reach out to Tata Capital for a quick loan. We offer home loans at some of the most competitive interest rates and flexible tenure.
Apart from this, you can use our home loan eligibility calculator to enhance your eligibility parameters. Visit Tata Capital website or download the instant loan app and apply for home loans online, right from your home. Enjoy a quick disbursal and hassle-free documentation process with us and move into your dream home without any delay!
FAQs
For under-construction property, tax deductions on home loan interest can be claimed only after the construction is complete. Interest payments made towards the loan during pre-construction are eligible for a claim in five equal instalments starting from the year of possession.
Deductions under Section 24B on home loan interest payments cannot be claimed during construction. These deductions are available only after the property is completed and possession is taken.
The tax benefit on the principal repayment under Section 80C can only be claimed after the construction of the property is complete and possession is taken.
After exhausting the Section 24B limit, you can claim additional deductions under Section 80EEA for first-time homebuyers, allowing an extra Rs. 1.5 lakhs deduction on home loan interest for properties with a stamp value of up to Rs. 45 lakhs.
Section 54 allows you to claim tax exemptions on long-term capital gains from the sale of a property if the proceeds from the sale are reinvested into constructing or purchasing a residential property. The new property must be purchased within three years from the sale date of the original property.
06 February 2025
8 mins read
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