While under-constructed properties are available for a discount of around 15-20 percent as compared to a ready-to-move-in property, did you also know that there are tax benefits to be availed, post possession?
If you are planning to buy a property with a lower budget and have no plans of moving in that house in the near future, then financial experts would advise you to book a house in an under-constructed project. While such properties are available for a discount of around 15-20 percent as compared to a ready-to-move-in house, another big advantage for salaried people is that after taking possession of the property, this investment of yours would also help you save on some taxes.
Deepali Sen, a certified financial planner from Srujan Financial Advisers LLP, explains that when a person buys a ready flat, he can claim the tax deduction under Section 80 C for repayment of principal amount of housing loan to the tune of 1.5 lakhs and around 2 lakhs for the interest paid on that loan in that financial year. “No tax deduction is allowed under Section 24 for property, which is still under construction. It is allowed only after the construction is complete and the possession is handed over,” she adds. This is because according to the Income Tax Act, 1961, a tax payer gets a deduction of 2 lakhs in respect of the interest paid on the housing loan taken to acquire the house only if the house is in the physical possession and belongs to the tax payer during the year. The maximum limit of interest deduction a tax payer can claim in a particular year is limited to the tune of 2 lakhs and will operate as a combined limit for the interest of that year plus one-fifth of the construction period interest.
Buyers have an option of paying only the interest amount on the loan and the actual EMI starts once the possession of the property is taken. However, if you have already started paying regular EMIs before the completion of the project to repay the loan amount earlier, you cannot claim any deduction for the principal repayment that you made on the property while in the under-construction stage.
Balakrishnan Venkataramani, a certified financial planner from VENSIVA Financial Solutions explains that there is one more condition to claim deduction of such an interest payment. “The possession of the property should be completed within three years from the end of the financial year in which the capital was borrowed for acquisition of the house. If the possession of the house is received after more than three years from the end of the financial year in which the loan was taken, then only an interest of Rs 30,000 is deductible each year. “Rajiv Raj, co-founder and director at CreditVidya, explains, “If the first house is rented out, the income received from the rented property is taxable and interest paid on a loan taken for such a property is fully deducted. The other property, being self-occupied, will have NIL income, but interest deduction on the corresponding home loan will be limited to Rs 2 lakhs,” he says.