Tax Benefit on Home Construction Loan

Obtaining a home construction loan is advantageous because the customer can take advantage of the deferred deduction on interest payable during the pre-construction period. The borrower can deduct the entire amount in equal installments. This is done beginning with the fiscal year and continuing for upto five years, or until the construction is completed.

What is a Home Construction Loan?

A Home Construction Loan is a type of Home Loan in which you can get a loan to build your own home rather than buying one. The lender pays out the money in stages as the work progresses. To apply for a home construction loan, you must provide the lender with a detailed construction timetable. A construction plan and a realistic construction budget will also help.

Following the approval of a construction loan, your loan amount will be disbursed in stages based on the demand of each construction stage. The lender would inspect the site during construction. He may also request a third-party technical team to visit and inspect it.

Tax Exemption for Home Construction Loan:

The pre-construction phase is the time between the date of borrowing and the completion of the construction. The Indian Income Tax Act specifies the conditions under which a salaried employee can claim a tax rebate on home loan interest payments.

Section 24 of the Income Tax Act clearly states that “if a property is still to be constructed, no deductions on interest payments will be allowed for all of those years.” The interest for the pre-construction period can be deducted in five equal installments beginning with the year the construction is completed.

Income Tax Deduction for Purchase or Construction of House

The Income Tax Act allows a taxpayer to claim a deduction from taxable income if he or she has purchased or built a home. Section 80C of the Act makes it possible for taxpayers to claim the deduction. The section allows taxpayers to claim a deduction in a variety of situations. Payments made by an assessed for the purchase or construction of a residential house are eligible for the deduction. You can deduct expenses under Section 80C from your gross total income.

Only if the Net Annual Value (NAV) of the house property is assessable to tax under the heading ‘Income from House Property’ will the deduction be allowed. The Income Tax law utilizes the concept of Net Annual Value (NAV) for house property to calculate the corresponding tax burden on homeowners. This article examines the Section 80C deduction for the purchase or construction of a home.

Deduction Under Section 80C

You can claim deductions on the principal component of your home construction loan under this Section. After the construction of your property is completed, you can claim a maximum deduction of Rs. 1.5 lakhs.

However, if you sell the property within five years of the date of possession, these benefits will be reversed, and the amount you claimed as a deduction will be added back to your taxable income for the year in which the sale is made.

To qualify for this tax break, obtain housing financing after determining your eligibility with the help of an online home loan eligibility calculator.

Section 24 of Income Tax Act

You can deduct the interest component of your home construction loan under Section 24 of the Income Tax Act. The maximum deduction allowed for self-occupied property is Rs. 2 lakhs.

However, you can only claim this deduction if you finish building your home within five years of taking out the loan. Otherwise, you can claim a Rs. 30,000 deduction. If the property in question is not self-occupied, the amount you can claim as an exemption is unrestricted regardless of completion status.

It is best to calculate your home loan eligibility online before taking out a loan to take advantage of this exemption.

80EE Section

If you are a first-time homebuyer, you can claim an additional Rs. 50,000 deduction on the interest component of the home construction loan. You can claim this deduction every fiscal year until you have completely repaid the loan.

To qualify for this benefit, the loan amount must be less than Rs. 35 lakhs, and the property value must be less than Rs. 50 lakhs. Furthermore, the loan must be sanctioned between 01.04.2016 and 31.03.2017. This deduction is in addition to the Section 24 exemption of Rs. 2 lakhs.

How can one avail of tax benefits from an under-construction property?

• Section 80C allows for a tax deduction for the amount paid for Stamp Duty and the Registration process.
• The provisions of Section 80 C allows a deduction of upto Rs 1.50 lakh for principal repayment of home loan. However, the deduction for home loan repayment is available only from the year in which possession is obtained.
• If you started paying regular EMIs before the property was finished, you cannot claim a deduction for any principal repayment until the construction was finished and possession was taken.
• If the project is delayed and possession does not occur on the specified date, the tax benefits for the principal and interest are forfeited.
• The tax benefits are available when filing income tax returns.

Expenses NOT Deductible 

Section 80C does not allow for the deduction of the following expenses:

The admission fee, share cost, and initial deposit that a shareholder of a company or a member of a co-operative society must pay to become such a shareholder or member.

The cost of any additions or alterations to, or renovations or repairs to, the house property that are carried out after the completion certificate has been issued or after the house property or any part of the property has been occupied or let out by the assesses or any other person on his behalf.

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