Shaky foundations: How on-going construction of your home can affect your tax benefits

The time taken in the construction of your home affects the tax benefits you may receive on the home loan. Here are the three provisions for these benefits:

1. Rebate on housing loan:

Section 80C allows you to get tax benefits for principal repayment of the home loan up to Rs. 1.50 lakh. If the property is under construction or is being self-constructed, your EMI’s do not begin until the entire home loan amount is disbursed in full, which often coincides with the completion of construction. However, if the entire loan amount is disbursed before the project is completed, your EMI might start early. In such a situation, you would not be able to claim any tax benefits in respect of such principal repayments as it is allowed only with respect to a property, income which is taxable under the head “Income from House Property”. Unless the property is completed and possession has taken place, the same cannot be taxed and hence, you would miss out on the tax returns.

2. Deduction on Interest paid for Housing Loans:

Section 24 allows you deductions on the interest paid on money borrowed for purchase, construction, repairs, renovation or reconstruction of a house. Like Section 80C, the condition of completion and possession is required. However, unlike Section 80c, Section 24 allows you to claim the interest for the period before you take possession of the home, referred to as pre-EMI interest, in five equal installments beginning from the year of the completion of construction. So the more the completion of the house is delayed, the more delayed is your right to claim the interest on the money borrowed by you.

3. Claiming exemption of capital gains:

Section 54 and 54F allow exemption from long term capital gains if a new house is constructed within three years. However, if there is a delay in the completion of the house, the income tax officer may take a different view in the case and an appeal will have to be filed with higher authorities to claim the exemption. It is important that the house is constructed in time so that the tax benefits may be availed of.This is one of the main reasons people take home loans. Related Articles:

• Structuring Home Loans & Tax Exemptions
• What is Property Tax and how is it calculated?
• Tax Benefit on Home Loan Interest for FY 2017-18

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