Plot Loan Tax Advantages: Understand How It Work

A plot loan is a loan given by a bank or other lender to applicants whose main purpose for the loan is to buy a plot of land so they can construct their ideal home. When requesting a loan, the majority of us always look for tax advantages. People frequently enquire as to whether tax advantages are also available for plot loans. We may reasonably reply that it depends on what one intends to accomplish with the purchased property even though there is no clear answer to the question. It primarily belongs to the following two groups:

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You would be unhappy to find that you are not entitle to any tax benefits if you buy a plot with no plans to build anything on it and intend to retain it in its current condition to sell for a profit in the future as a long-term investment.

On the other hand, you are qualified to receive tax benefits if you plan to buy a site to build a villa, bungalow, house, or any other type of building in such a situation. Both the plot loan taken to buy the plot and the home loan taken to build a house on the plot are eligible for the tax benefit.


Now that we have an example to help us comprehend the tax advantages:

Anand wants to purchase a block of land for Rs. 30, 00,000. He chooses to go to a bank and apply for a loan for Rs. 30,000,000. He chooses to build a house on that land a year later and projects building costs of INR 40, 00,000. Anand goes to his bank once more to obtain a loan for the amount of INR 40, 00,000 to build his house. Anand currently owes a total of INR 70,000 in loans. In the first year, Anand won’t be able to claim any tax benefits. However, starting with the completion of construction on his house plot, he may be able to deduct the aggregate loan amount of INR 70, 00,000 from his taxes.


How may I use the tax advantages for a plot loan?

As seen in the aforementioned example, a tax benefit on a plot loan can only be obtained if a building is built there, and even then, only after that building is finished. However, once the building is finished, we can take advantage of the tax savings listed below.


Benefit from taxes under section 80C:

The Income Tax Act of India contains a section called Section 80C that examines a number of investments and expenses that are exempt from paying income tax. You are eligible for a deduction under this section for the portion of your home and plot loans that pertains to principal repayment only and ignores the interest component. This permits a maximum exemption from your taxable income of INR 1, 50,000 each year.

Plot Loan Tax Advantages: Understand How It Work

If they are paid for in the same year that the home’s construction was finished. The title transfer fees for the plot and the registration fees are also included in the exempted amount.


Tax benefit for plot loan under Section 24:

Upon completion of the home’s construction and after you’ve moved in, you may profit further from the interest portion of your land loan under Section 24 of the Income Tax Act. To take advantage of this benefit, you must, however, convert your plot loan into a regular home loan. Once the building of the house on the plot is complete, it is simple to convert the plot loan into a home loan. This is accomplish by giving the bank or lender a completion certificate and an occupation certificate.

If the house owner and/or his family stay in the newly constructed home. The maximum deduction applicable on the total taxable income under this section is INR 2,00,000, and INR 1,50,000 if you missed completing the forms for the year and are filing them now. However, if the built-home is given as a rental, the entire interest is forfeit.


Additional Tax Benefits:

Additionally, you are qualified to qualify for the following additional benefits.


Interest rate reduction:

According to the Income Tax Acts, you can obtain a plot loan at a cheaper interest rate if you purchase a plot on one with the aim of building a home there. Since you can avoid paying a significant portion of your overall payments as high interest, this is very advantageous.


Reduced interest rate for pre-construction:

If you build a house on the plot, as mentioned above, you are eligible for lower borrowing rates. Exemptions typically only apply to the fiscal year in which a transaction occurs. In this instance, though, you qualify for a pre-construction interest rate decrease. Allowing you to request a reduction from before the fiscal year for the same fiscal year. The interest decrease will be given to you in a number of instalments. The deduction, nevertheless, is only available up to INR 2, 00,000 and only if the owner or their family resides in the newly built property.

Therefore, be certain of how you want to utilize your plot. Before applying for a plot loan to benefit from tax benefits on your loan.





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