Buying a house that is fully constructed and well-furnished is not affordable for everyone. Even with easy home loans, such apartments can be very challenging to purchase. Since such houses are more expensive, they invite more loan amount, and in turn, more home loan interest for the borrower. If these problems seem substantial to you as well, go for an under-construction property rather than an entirely constructed one.
Loans for under-construction houses are not only small but also come with plenty of tax benefits for the borrower. You can claim a deduction of interest payments even if you purchase an unconstructed home. If you take a housing loan to buy yourself a property that is still under construction, here are some tax-related advantages you might receive.
- You can claim a tax deduction of a maximum of Rs. 2 lakhs on interest payments made in a year for under-construction properties. This tax advantage is not applicable for houses that are in the pre-construction period, i.e., the period between the day of loan sanctioning and the day of construction.
- If the construction of the house finishes within five years from the date of loan sanctioning, the borrower can claim tax benefits of the pre-construction period in 5 equal instalments.
- Remember that these tax deductions are strictly for houses under construction. If you have purchased a plot and plan to construct a house on it, you will not be eligible for any tax deductions whatsoever.
- Under Section 24, once the property is built, and you give it on rent, you can claim the entire interest amount for tax deductions.
During the pre-construction period, buyers require to pay only the interest on the loan amount. If you make any principal amount repayments during this period, your home loan will not be eligible for any tax deductions.
Additionally, tax deductions that you claim on your under-construction property will have to be paid back if you sell your house within five years from the date of possession.
If the fear of a huge loan amount, high home loan interest rates, and unaffordable EMIs are haunting you, buying an under-construction property is a wise decision. Even if you apply for a home loan that is small, you must ensure efficient and detailed financial planning. To do so, make use of home loan EMI calculator to check the amount of money you will dedicate solely to your loan per month and how much of it will go as interest.
Home loan calculators will also help determine your loan tenure and allow you to judge how much of your money will be eligible for deductions. Before you apply for a home loan online or offline, check your home loan eligibility details and keep all documents handy. Even while filling out your tax forms, keep a copy of your loan documents near you.
File your home loan application and save yourself a substantial amount of money on the purchase of an under-construction property only after understanding all the tax benefits available to you.