Prepared to purchase a property that is still being built? Discover the capped amount, terms that apply, and under-construction property tax incentives based on various parts of the IT Act 1961. The majority of under-constructed properties are offered at a discount of between 15 and 20%. When compared to homes that are ready to move into, these properties are less expensive. Additionally, did you realise that there are tax benefits when you assume ownership?

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You must think about renting a unit in an ongoing construction project if you have a limited budget and no immediate intentions to move in. Such properties may be advantageous for those seeking mortgages who are employed. Upon taking possession, they may apply for a property tax rebate for under-construction properties. These tax advantages are provided by Sections 24B, 80C, & 80EEA of the Income Tax Act of 1961. To find out how this tax deduction functions, continue reading. You can also find out what restrictions apply to such claims.

Income Tax Act of 1961 Sections 24B, 80C, & 80EEA

Here are the sections of the IT Act that provide property tax incentives for building.

• Section 24B of the IT Act of 1961 provides an under-construction property tax deduction of up to Rs. 2 lakh each fiscal year. The interest rate on a mortgage can be reduced to account for this sum.
• Section 80C of the IT Act of 1961 provides a tax deduction for under-construction real estate of up to Rs. 1.5 lakh every fiscal year. You can deduct this sum from your paid-off mortgage’s principle.
• Section 80EE of the IT Act of 1961 allows for an additional tax deduction of Rs. 50,000 on home loan interest paid after the Section 24B limit has been reached. This advantage relates to under-construction property tax benefits.
• IT Act of 1961, Section 80EEA: In accordance with Section 80EEA’s benefits for under-construction properties, the taxpayer may deduct an additional Rs. 1,50,000 in taxes from the amount of house loan interest paid after the Section 80C limit has been reached.

All of these IT Act Sections provide for under-construction property tax incentives, but only under particular situations. For more information, read the complete article.

Benefit from Under-Construction Property Taxes under Section 24B of the IT Act of 1961

A taxpayer is entitled to a deduction of Rs 2 lakhs for the interest paid on the mortgage used to buy the home under the Income Tax Act of 1961. Only if the taxpayer has physical possession of the home during the year and it is theirs in all other respects are deductions allowed. Under Section 24, a property that is still being built is not eligible for a tax deduction. Only after the construction is finished and the taxpayer has possession is it permitted.

A taxpayer is only permitted to deduct up to Rs. 2 Lakh in interest throughout each fiscal year. This functions as a combined limit for that year’s interest plus one-fifth of the interest from the construction period.

During the pre-construction phase, buyers have the option of paying simply the interest on the loan. Once the property is taken into possession, the true EMI begins. However, let’s say you began making regular EMI payments before the project was finished in order to pay back the loan amount in a shorter amount of time. In that situation, the principal repayment you made on the property while it was still under construction is not deductible.

How to Figure Out the Pre-Construction Period for Tax Benefits on Home Loans

The pre-construction era must be determined in order to qualify for under-construction property tax benefits.

Step 1: Find the date on which your mortgage began.

2nd Step: Get the start date of your home loan EMI

Step 3: Discover the day that the building was finished and you took control of the property.

4th Stage: Write down the last day of the fiscal year that came before the purchase of the property or the completion of construction. If you haven’t started paying mortgage loan repayments, this applies to you.

The EMI start date will be regarded as the conclusion of the construction period if you began making payments prior to purchasing the home or the project’s completion.

Step 5: The pre-construction period is the time frame from the beginning of the home loan to the conclusion of the building period.

According to Section 24B, you are eligible for a property tax break on under-construction properties equal to the total amount of home loan interest you have paid during this time. You must divide this sum by five and submit each portion as a separate claim in the next fiscal year. When submitting your income tax return for the most recent fiscal year, you may deduct this amount for house loan interest under Section 24B.

Important Information Regarding the Section 24B Home Loan Tax Benefit

Here are a few more essential details about the Section 24B property tax credit for under-construction properties.

Pre-construction period interest and current year interest are both included in the maximum under-construction property tax benefit amount of Rs. 2 Lakh.

Only if the property’s development is finished within five years after the last day of the fiscal year in which the mortgage was borrowed is the under-construction property tax advantage applicable.

The taxpayer may deduct all of the home loan interest paid during the pre-construction phase in one lump sum if the loan and EMI start dates fall within the same fiscal year. It is not essential to make the same claim throughout five years.

Tax Benefit for Properties Under Construction Under Section 80C of the IT Act of 1961

Immediately following the conclusion of the pre-construction period, Section 80C of the IT Act comes into play. This is so that the construction work can be finished before you make any main payments on your mortgage.

The under-construction property tax benefit of up to Rs. 1.5 lakh each financial year, however, can be claimed once the pre-construction period has ended. These home loan tax benefits will be lost if you sell the property within five years of the last day of the fiscal year in which you took possession.

The tax benefit must be claimed within the same financial year that the expenses were incurred, according to Section 80C of the Income Tax Act.

Under-Construction Property Tax Benefit under Section 80EE of the IT Act of 1961

If the specified limit of Rs. 2 Lakh under Section 24B has been reached, Section 80EE of the Income Tax Act provides an additional under-construction property tax credit of Rs. 50,000 per fiscal year on home loan interest rates.

If the requirements listed below are met, the tax deduction allowed by this provision may be claimed.

• Home loans obtained in the financial years 2013–2014, 2014–2015, 2015–2016, and 2016–2017 are eligible for the tax benefit.
• The only people who can take advantage of this tax break on under-construction property are first-time individual homebuyers.
• To qualify for this tax credit on property that is still under construction, the value of the associated property cannot be greater than Rs. 50 lakhs.
• To qualify for this tax incentive on under-construction house, the mortgage amount cannot exceed Rs. 35 Lakhs.
• The mortgage on the property that is still under construction must be approved by a recognised financial institution.

Under-Construction Property Tax Benefit Under Section 80EEA of the IT Act of 1961

If the given limit of Rs. 1.5 Lakh under Section 80C has been reached, Section 80EEA of the Income Tax Act provides an additional under-construction property tax benefit of Rs. 1,50,000 each financial year on house loan interest rates. If the requirements listed below are met, the tax deduction allowed by this provision may be claimed.

• The tax benefit is available for house loans taken out during the 2019–20, 2020–21, and 2021–22 fiscal years.
• Only first-time individual homebuyers are eligible for this tax break on property that is still under development.
• To qualify for this tax break on under-construction property, the total amount of the stamp duty payments made cannot exceed Rs. 45 lakhs.
• The carpet area of the home must be more than 645 square feet for houses in major cities.
• The carpet area of the home must be more than 968 square feet for homes in other cities.
• Section 80EE prohibits taxpayers from claiming a tax credit for property that is still being built.

The Bottom Line on Property Tax Benefits from Under-Construction

You may easily take advantage of the significant under-construction property tax incentives now that you are aware of them all. When submitting a claim against under-construction property tax benefits, be sure to follow the correct procedure. To substantiate the information you supply in the tax claim form, you might be required to provide specific documents. These documents require updating with your most recent information. This makes it easier for authorised personnel to easily check the information given and quickly approve your tax deduction request.

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