The answer to that is not so straightforward, as a number of conditions need to be fulfilled to avail tax relief on under construction property. Tax benefits will be available on under construction property when you take a home loan from a bank, housing finance company or any other financial institution. You can claim tax benefits on both interest payments and principal repayment under various sections of the Income Tax Act. Here’s an overview of the various sections under which you can get tax relief on under construction property.
Under this section, tax relief is available for the interest paid on home loan during the under-construction phase. However, the tax deduction will not be available during the under construction period. The tax deduction can be claimed only after the construction has been completed and the homebuyer has receivedpossession of the property. The total interest paid during the under construction phase is aggregated and divided into five equal installments that can be claimed as tax benefit over the next 5 years.
The maximum tax deduction available under Section 24 is Rs 2 lakh for self-occupied property. However, the construction needs to be completed within 5 years of taking the home loan or else the tax relief will be limited to Rs 30,000. In case the property is not self-occupied, the entire interest amount can be claimed as deduction. Also, the 5-year completion timeline does not apply in case of property that is not self-occupied.
This section deals with tax deduction for payments made towards principal repayment of home loan. Section 80C also covers deduction on other types of investments such as NSC, fixed deposits, PPF, mutual funds, senior citizen savings scheme, etc. In case of home loan, this section will become applicable only after construction has been completed and the homebuyer has received the completion certificate. However, other payments such as registration fees and stamp duty can be claimed as tax deduction under Section 80C. Tax deduction on principal repayment on your home loan will be available only after construction has been completed. The maximum amount you can claim under Section 80C is Rs 1,50,000.
Note: In case the property is sold within 5 years of getting possession, the tax benefits availed under Section 80C will be treated as income and taxed accordingly.
Under this section, additional tax benefit of Rs 50,000 is available for first-time homebuyers. This is available for interest paid on the home loan. This section was re-introduced in the 2016 budget. If you are a first time homebuyer, you can claim 2 lakh deduction for interest paid on your home loan under Section 24 and an additional Rs 50,000 under Section 80EE.
Loan from friends and family:
You can also claim tax benefits if you have taken a loan from any of your friend or family member to buy an under-construction property. However, in this case, you can claim tax benefit only on the interest paid and not on the principal repayment. Also, you will have to furnish relevant documents to prove that you have taken a loan from a family member or friend. Your income tax return and that of your friend / family member may be crosschecked by the I-T Department before approving tax benefits on your under construction property.
When taking a home loan, you should carefully read the terms & conditions to ensure that you are getting the best deal. Choose reliable and trusted home loan providers such as PNB Housing, which have a proven track record and thousands of satisfied customers. Choosing PNB Housing for your home loan will ensure a hassle-free experience and complete peace of mind. You will also be able to get the most competitive interest rates and benefit from one of the lowest processing fees and charges in the industry.