Under Construction Home Loan Tax Benefits: Maximize Savings and Deductions

 

 

Owing a house is everyone's dream, and under the present financial scenario, many have preferred to take an under-construction property. If you are taking a housing loan for an under-construction property, it becomes imperative to know about the tax benefits you can avail of in order to make your investment more financially viable. From Section 24 of the Income Tax Act to deductions on housing loan principal under Section 80C, there are a lot of tax-saving opportunities that can ease your home loan journey.

 

 

This blog will take you through the under construction home loan tax benefits, how to maximize them, and what tax benefits apply to under construction properties.

 

Under Construction Property Income Tax Act Section 24 

 

Amongst all tax benefits of a home loan, one major one is under section 24 of the Income Tax Act. Here, one gets to avail the deductions for interest on the housing loans of the property if it is either self-occupied or is being given out on rent.

 

 

If the property is under construction, one can avail the deduction for interest paid on the housing loan even before one possesses that property. However the claiming of the deduction is not immediate. Section 24 says the interest on housing loan deduction can only be availed once the construction on the property is complete and the possession has been taken.

 

 

If you are paying interest during construction, the interest will be capitalized and allowed as a deduction from your taxable income in five equal installments, commencing from the year of possession. This implies that even though you are paying the interest before possession, you can still spread the tax deduction over the next five years.

 

The maximum deduction that can be claimed under Section 24 is ₹2 lakh per year for self-occupied property. For rented properties, the entire interest amount paid can be deducted without any upper limit.

 

 

Tax Benefit on Under Construction Home Loan

 

While you can also claim an under-construction home loan tax benefits for the interest paid during the construction period (as explained above), an important point to note is that before you can claim full deduction, you must ensure that the property is completed. The total interest paid for the construction period can be claimed as a tax benefit once you obtain possession, and the aggregated amount is divided equally over the next five years.

 

 

It’s essential to keep track of the interest paid on the home loan during the construction phase to ensure you can claim the maximum benefit when the property is ready for possession. For under construction properties, lenders typically disburse funds in stages as construction progresses, and it’s important to retain records of these payments.

 

 

Housing Loan Under Which Section?

 

When it comes to the tax benefits of a housing loan, many borrowers wonder under which section of the Income Tax Act do they claim their deductions. The two primary sections you should be aware of are:

 

 

Section 24(b): This gives income tax deduction to the interest payment for home loans made for properties owned or under construction, leased. Maximum home loan interest, one can get the benefit under Section 24 is ₹ 2 lakh pa

 

 

Section 80C: Principal repayment is available under it with a total cap of up to ₹1.5 lac pa for property - under-construction and ready as well be. For ready ones as also, on an own/lease option.

 

 

Housing Loan Principal 80C

 

Apart from the deductions allowed under Section 24, a deduction is allowed under Section 80C of the Income Tax Act on the principal repayment of a housing loan. The limit under Section 80C is ₹1.5 lakh in a year. This deduction will be available irrespective of whether the property is under construction or ready for occupation, but only on the principal amount and not on interest.

 

 

For under construction properties, the principal repayment can also be claimed under Section 80C, provided the property is ready for possession during the financial year.

 

 

TDS on Under Construction Property

 

TDS on under construction property is one of the most important considerations when buying an under construction property. As per Indian tax laws, developers are liable to deduct a TDS of 1% for properties worth ₹50 lakh or more. This TDS is deducted on the sale price and has to be paid directly to the government.

 

 

Though TDS on under construction property is not a direct tax benefit, it is an important aspect of your overall tax strategy, as this amount can be claimed as a credit when filing your tax return.

 

 

Tax Rebate on Home Loan

 

In addition to the deduction on home loan interest and principal repayment, some tax rebates are available to home loan borrowers. An example is the additional tax rebate offered in Section 80EE specifically for first-time homebuyers. The first-time homebuyers can claim an additional deduction of ₹50,000 pertaining to the interest paid in respect of that loan which was taken for properties having a value capped at ₹45 lakh.

 

 

The best way to save tax liability can be the home loan tax rebate if you fulfill the eligibility criteria.

 

Housing Loan Exemption

 

Another important consideration here is the home loan exemption offered on interest payments on home loans. As brought out, the interest paid for the home loan on both a self-occupied and a rented property can be claimed as exemption under Section 24(b). If the property is rented out, there is no cap placed on the deduction of interest payment, which amounts to significant saving.

 

 

For under construction properties, you may not be able to claim the interest deduction immediately, but once the construction is complete, you can start claiming the full benefits, which will be distributed over a five-year period.

 

 

Conclusion

 

An under construction property can be a good investment, but one must understand the tax benefits available to him. There are multiple ways of reducing taxable income from interest paid on housing loan deduction under Section 24 to principal repayment deduction under Section 80C. Not to forget TDS on under construction property and tax rebates for first-time homebuyers, which will add more savings to your kitty.

 

 

With these under construction home loan tax benefits in hand, you can make the most informed decisions and thus maximize the financial benefits that yield your property investment. They range from buying an under-construction house to claiming deductions on your very own home loan, which seriously reduces the incidence of taxes and makes the journey to homeownership more affordable.