Income Tax Benefits on Home Loan For Under Construction Property

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Income tax Benefit on Home Loan for Under
Construction Property
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An under construction property is always less
costly than a fully constructed house and can
claim tax benefits. The time period when the loan
has been taken to the time before starting of the
construction of the home is known as
"pre-construction period". Until construction is
complete or acquisition is made, the period is
called as Prior Period. The interest which is
being paid in these both periods is called PPI
(Prior period Interest)
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A tax benefit can be claimed on principal
repayment as well as payment of interest on home
loans. A home loan can be tax-efficient with a
proper understanding of three major sections of
the Income-Tax Act that cover tax gains under
house property. These three sections are 80C, 80
EE and 24B.
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Section 80C Under income tax act 80c, a home
loan borrower can take the advantage of tax
rebate on the principal repayment up to INR
1,50,000 every financial year. Even tax deduction
can be applied under this section for payment of
stamp duty charges. The deduction can be applied
after completion of the construction.
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Section 24B Under section 24B, a tax deduction
can be applied for payment of interest up to INR
2,000,000 on the home loan in every financial
year. The maximum benefit for a self-occupied
property is up to 2 Lakhs, whereas if the
property is rented out then the rent which the
owner is gaining will be a taxable income.
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Section 80 EE This section provides an
additional deduction of INR 50,000 over section
80C and section 80EE. This is a newly launched
facility and is applicable for those who have
taken a home loan between April 1, 2016, and
March 31, 2017. The property value must not be
more than 50 Lakhs and the loan amount should not
cross more than 35 Lakhs. This benefit can be
enjoyed until the end of the tenure.
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Checklist Here is the checklist which one should
keep in mind while applying for a tax
benefit Cannot claim tax benefit if the house is
sold within 5 years If the house is sold within
5 years of occupancy then the tax deduction will
be reversed and will be considered as income
which will come under applicable tax payment. The
deductions which a borrower enjoyed on principal
payment will be lumped together and will be
counted in income.
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The construction must be completed within 5
years A tax deduction of 2 Lakhs cannot be
applied if the construction is not completed
within 5 years from the day of loan sanctioning.
The claim of Rs. 2 Lakhs goes down to Rs. 30,000
in case construction of the house is not
completed within a period of five years from the
end of the year in which such loan was taken.
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Should be claimed in five installments Once the
construction is completed, one is allowed to
claim the accumulated interest paid. The tax
rebate should be applied in five equal
installments along with the regular interest of
that particular financial year. However if the
loan sanctioning and the occupancy happens in the
same financial year then one can apply for a tax
deduction by the end of that particular financial
year.
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Repayment of the loan in prior period cannot
claim a tax deduction If a borrower repays the
loan before the construction is completed then
he/she is not allowed to get the tax benefit. A
repayment done in prior period is beyond the tax
deduction regime. The tax deduction is one of the
prominent benefits of home loan. A home aspirant
can apply for a home loan for an under
construction property. One has to start paying
EMI soon after the sanctioning of the loan.
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If the possession is delayed one may not avail
the full tax deduction which a great loss for any
borrower. But if the borrower concerned then he
can definitely reap a decent benefit by
purchasing a home under construction. Being
informed of new rules and regulations of
Government is sure to save maximum in tax
payment.