Home Loan Tax Benefits on an Under-Construction Property
A Home Loan can be a viable financial option to purchase a property. With the right financial planning, you can experience a hassle-free homeownership journey.
A Home Loan not only facilitates the purchase of your dream home but also offers tax benefits, enabling you to save funds. Investing in an under-construction property also provides opportunities for tax savings. Hence, it is important to understand how one can avail of tax benefits on a Home Loan for an under-construction property.
Income Tax Benefit on a Home Loan for an Under-Construction Property
Section 123 of the Income Tax Act, 2025 makes provisions for tax relief on Home Loans availed of to buy under-construction properties. If you have availed of a housing loan to buy an under-construction property and are currently paying EMIs for the same, Section 123 of the Income Tax Act, 2025 allows you to claim deductions of up to Rs.1.5 Lakh on repayments made towards the principal component. However, the house must be transferred to the taxpayer within five years of its possession.
Further, Section 131 of the Income Tax Act, 2025 allows borrowers to claim deductions up to a total of Rs.2 Lakh on the payments made towards the interest component. However, Home Loan borrowers must know that they can claim this deduction only after the construction of the property has been completed. Interest paid during the pre-construction period is eligible for tax deductions in five equal instalments starting from the year of completion.
Tax Benefits on Stamp Duty Paid for the Acquisition of an Under-Construction Property
Over and above the deductions claimed on the payments made towards the principal and interest component, one can also claim tax benefits on the stamp duty paid for the acquisition of an under-construction property. Borrowers can claim deductions up to the limit of Rs.1.5 Lakh on payments made toward stamp duty and registration charges. However, one can make this claim only after the construction on the property has been completed. In the case of joint Home Loans, both financial co-applicants can claim deductions separately.
Further, Income Tax Act, 2025 of the Income Tax Act, 2025 states that if the value of the under-construction property falls under Rs.45 Lakh, the borrower can claim deductions up to a maximum of Rs.1.5 Lakh on the payment made toward interest repayments. This deduction is available over and above the limits set by Section 22. However, the Home Loan must have been sanctioned between 1 April 2019 and 31 March 2022.
Planning Your Finances for an Under-Construction Property
Investing in an under-construction property requires careful financial planning. Beyond understanding the tax benefits, it is important to assess your financial readiness. You can start the assessment by calculating your expected Home Loan EMIs and ensuring they align with your monthly budget. It is also advisable to know the Home Loan interest rates available. Availing of a Home Loan at favourable terms can help you manage your long-term financial goals.
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