Tax Benefits for Under Construction Home Loans: A Comprehensive Guide

by Godrej Properties Limited

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Beyond the appeal of discounted prices, under-construction properties offer attractive tax benefits that can enhance your financial planning. This article delves into the under-construction home loan tax benefit available for under-construction properties under sections 24B, 80C, 80EE, and 80EEA of the Income Tax Act 1961. 
 

Section 24 of the Income Tax Act for Under-Construction Property

Under section 24B of the Income Tax Act 1961, homeowners can claim a tax deduction of up to Rs.2 lakh per financial year on the interest paid for a home loan used to purchase the house. However, this deduction applies only when the house is in physical possession and belongs to the taxpayer during the year. No tax deduction is allowed under section 24 of the income tax act for under-construction property. 
 

The deduction applies only after the construction is complete and the taxpayer takes possession of the property. The maximum interest deduction in each financial year gets capped at Rs.2 lakh, including the current year's interest and one-fifth of the interest during the construction period.
 

Calculating Pre-Construction Period for Home Loan Tax Benefit for Under-Construction Property

To avail of the under-construction property tax benefit under Section 24B, homeowners must calculate the pre-construction period. This period begins from the home loan start date to the end of the construction period. The total home loan interest paid during this period can be claimed in five annual installments, divided equally.
 

Under-Construction Property Tax Benefit - Section 80C

Once the pre-construction period ends, homeowners can claim the tax benefit on under-construction property under Section 80C of up to Rs.1.5 lakh per financial year. This deduction is available for the paid home loan principal amount. However, if the property gets sold within five years from the last day of the financial year in which the owner obtained possession, these tax benefits will get reversed.
 

Additional Tax Benefit on Under Construction Property - Section 80EE and 80EEA

Sections 80EE and 80EEA offer extra under-construction property tax benefits on home loan interest rates, provided the limits under Sections 24B and 80C are exhausted. Homebuyers meeting specific conditions can claim tax deductions of Rs.50,000 and Rs.1,50,000 under these sections, respectively.
 

Conclusion: Seizing the Tax Benefit on Home Loan Under Construction

Under-construction properties present lucrative investment opportunities and open doors to substantial tax benefits such as the home loan tax benefit for under-construction property. By adhering to the correct procedure and ensuring updated documents, homeowners can efficiently file claims for under-construction property tax benefits. 


FAQs

Q: What is the maximum under-construction tax benefit under Section 24B?

A: The maximum tax benefit on under-construction property under Section 24B of the IT Act is Rs.2 lakh per financial year.
 

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

A: Homeowners can claim Rs.1.5 lakh as the tax benefit on the under-construction property per financial year. 
 

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