Home Loan Tax Benefits for Under-Construction Property

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A home loan for under-construction property can get tax deductions up to Rs. 2 lakhs on interest paid in a year and up to 1.5 lakhs for principal paid under Section 80C of the Income Tax Act.

The deduction for the interest repaid can be claimed once construction of the home is completed and is done within 5 years and deduction can be claimed in 5 equal installments. If the property isn’t constructed in 5 years, the maximum deduction for the interest paid on the Home Loan is Rs. 30,000. You can use our home loan calculator to get an estimation of interest paid and and EMIs amount.

What is pre-construction interest?

Pre-construction interest, also known as pre-EMI interest, is the interest charged by lenders on the disbursed loan amount during the construction phase of a property. This period typically spans from the loan disbursement date until the property's completion or possession. Borrowers are required to pay only the interest accrued on the disbursed loan amount, known as pre-construction interest, until the property is ready for possession. Once construction is complete, regular equated monthly installments (EMIs) comprising both principal and interest payments commence. Pre-construction interest payments help manage the financial burden on borrowers during the construction phase of their property.

How Section 24 affects your tax savings on under-construction property?

Section 24 of the Income Tax Act impacts tax savings on under-construction properties in several ways. Firstly, under this section, borrowers can claim tax deductions on the interest paid on home loans for the acquisition or construction of a property. However, for under-construction properties, this deduction is limited to the interest paid during the pre-construction period, often referred to as pre-construction interest or pre-EMI interest. This interest can be claimed in five equal instalments starting from the year in which the construction is completed. Additionally, borrowers can claim the deduction of up to Rs. 2 lakh per annum for self-occupied properties and the entire interest amount for properties that are let out.

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Frequently asked questions

What are the tax implications of under-construction property?

For under-construction properties, no tax deductions are available on home loan interest payments until the construction is completed. However, the interest paid during this period can be claimed in five equal instalments from the year the construction is completed.

Which deduction on home loan interest cannot be claimed when the house is under construction?

The deduction on home loan interest under Section 24(b) of the Income Tax Act, 1961 is not permissible when the house property is under construction.

How do I claim tax exemption on under construction property?

You can't claim direct tax exemption on an under-construction property. However, post completion, you can claim a deduction for the interest paid during the construction phase in five equal instalments.

What are the tax implications of under construction property?

The tax implications for under-construction properties involve no direct tax benefits during the construction phase. However, post construction, homeowners can claim deductions under various sections of the IT Act.

How much can I claim as the under-construction tax benefit under Section 80C?

For under construction property, an individual can claim a deduction on the principal repayment including stamp duty and registration fees up to Rs. 1.5 lakhs under Section 80C after the construction is completed.

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