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Tax benefits from an under construction home

Comments(4) Sub Category:Real Estate Posted On: Jul 25, 2012

AMC Property TaxTaking a home loan for an under construction apartment is quite beneficial as the customer can avail the deferred deduction on the interest payable during the pre-construction period. The loan seeker can avail the entire amount as deduction in equal installments starting from the financial year up to five years and till the construction is completed.

Tax exemption for an under construction property:

The pre-construction phase is the period which starts from the date of the borrowing and ends when the construction is completed. The Indian Income Tax Act states the conditions under which an employee with salary can claim tax rebate on the interest payment for the housing loan.

The Section 24 of the Income Tax Act clearly states that ”if a property is still to be constructed, there will not be any deductions on the interest payment all of those years. The interest for the pre-construction period can be availed for the deduction in the 5 equal installments from the year the construction is complete.’’

Loan Eligibility

For under-construction property, the banks disburses the loan in stages, depending on the stage of completion of construction. As a proof, the borrower has to provide certificate from an architect or a civil engineer. In some cases, banks may depute their own architect for issuing the requisite certificates. It is important to note that banks does not disburse any amount until you have completely paid the full booking amount.

Loan Repayment

As usual, repayment of loan is in the form of EMIs (Equated Monthly Instalments), which starts once the full loan amount is disbursed. This usually coincides with completion of the construction. Till the time the EMIs start, one has to pay interest on the money already disbursed by the banks, which is knows as pre-EMI interest.

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

  • Section 80C allows tax benefit for the amount paid towards the Stamp Duty and the Registration process.
  • As per the provisions of Section 80 C, one is entitled to claim deduction upto Rs 1.50 lakh for principal repayment of the home loan. However, the deduction for repayment of home loan is available only from the year in which possession has been taken.
  • In case, one has already started paying regular EMIs before completion of the property, then one cannot claim any deduction for any principal repayment till construction is completed and possession is taken.
  • If there is a delay in the project and the possession doesn’t happen on the given date, one does not get the tax benefits for the principal and the interest.
  • One can avail the tax benefits at the time of filing the income tax returns.

Planning to Sell Property within 5 years? Know this!

In case you want to sell the property (for which deduction has been claimed) within five years after the completion, be ready for tax implications. All the deductions claimed by you for repayment will be inverted and will be treated as income of the year in which you sell such property.

Explanation of the Section 80C

This Section states that, for the purpose of purchase or construction of a residential house/property, the income which is chargeable to tax under the head ‘income from house property’ (or which would, if it had not been used for the assessee’s own residence, have been chargeable to tax under that head), where such payments are made towards or by way of;

  • Any installment or part payment of the amount due under any self-financing or other scheme of any development authority, housing board or other authority engaged in the construction and sale of house property on ownership basis; or
  • Any installment or part payment of the amount due to any company or co-operative society of which the assessee is a shareholder or member towards the cost of the house property allotted to him; or
  • Repayment of the amount borrowed by the assessee from
  1. The Central Government or any State Government
  2. Any bank, including a co-operative bank
  3. The Life Insurance Corporation
  4. The National Housing Bank

4 Responses to “Tax benefits from an under construction home”

  1. Isaias Trotz says:

    Its so simple to get into a mess with back taxes, and then its so difficult to find your way back out.

  2. seo says:

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  3. ghawiaklw says:

    Wow, wonderful blog layout!

  4. Maya says:

    Every one looks for Tax benefits while investing in property. Taking a home loan for an under construction property can be beneficial. Thansk for sharing about the tax benefits for investment on the pre-construction period.

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