Tax Benefits of Ready to Move in Properties over Under Construction Houses
May 18, 2017 Legal Guidance
Buyers often book properties under construction for the lower prices. But they do not realise the financial and tax implications of the same. It is always better to choose the ready to move in properties over the under construction properties for the tax benefits.
As the prices of the properties keep rising, it is impossible for the home buyers to buy the property without taking a loan.
Section 24(b) of the Income tax 1961, allows the buyers a deduction in the interest of the property under construction/ repair however this can only be claimed once the construction of the property is complete and the possession has been granted. The interest paid during the construction can be claimed in five instalments over five years. The maximum amount that can be claimed is 2 lacs. If the claim exceeds more than 2 lacs then it cannot be claimed and the applicant loses the money. Also, if the owner sells the house before five years of construction, then the right to claim the pre- EMI interest for the remaining year is lost forever.
If the construction of the property is delayed for more than five years then the claim on the tax benefit is reduced from Rs 2 lacs to Rs 30,000. There is always the risk involved with the projects under construction getting delayed indefinitely. Also, if the property under construction is resold, then the borrower loses all the tax benefits regarding the same.
What are the tax benefits on the principal repayment?
Under section 80C of the income tax act, a deduction of Rs 1.5 lacs on the principle repayment is allowed, given it is taken from the specified entity. This provision is only applicable if you have taken the possession of the property.
Section 54 and 54F of income tax act allows the exemption of the long term capital gains. This is only applicable if the buyer has invested in another residential property, three years from the sale of the previous one. If the possession of the property increases the stipulated time period then the buyer is supposed to pay the capital gain tax which they previously thought of saving.
The decision to buy the under construction property has tax risks as well.
As the prices of the properties keep rising, it is impossible for the home buyers to buy the property without taking a loan.
Section 24(b) of the Income tax 1961, allows the buyers a deduction in the interest of the property under construction/ repair however this can only be claimed once the construction of the property is complete and the possession has been granted. The interest paid during the construction can be claimed in five instalments over five years. The maximum amount that can be claimed is 2 lacs. If the claim exceeds more than 2 lacs then it cannot be claimed and the applicant loses the money. Also, if the owner sells the house before five years of construction, then the right to claim the pre- EMI interest for the remaining year is lost forever.
If the construction of the property is delayed for more than five years then the claim on the tax benefit is reduced from Rs 2 lacs to Rs 30,000. There is always the risk involved with the projects under construction getting delayed indefinitely. Also, if the property under construction is resold, then the borrower loses all the tax benefits regarding the same.
What are the tax benefits on the principal repayment?
Under section 80C of the income tax act, a deduction of Rs 1.5 lacs on the principle repayment is allowed, given it is taken from the specified entity. This provision is only applicable if you have taken the possession of the property.
Section 54 and 54F of income tax act allows the exemption of the long term capital gains. This is only applicable if the buyer has invested in another residential property, three years from the sale of the previous one. If the possession of the property increases the stipulated time period then the buyer is supposed to pay the capital gain tax which they previously thought of saving.
The decision to buy the under construction property has tax risks as well.
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