Completion Of Construction And Its Importance Under Income Tax Laws
10 Sep 2016
There are numerous income tax provisions that link the benefits with the time taken to complete the construction of a property. Let’s have a look at the various provisions under the income tax laws.
Deductions pertaining to repayment of the principal component of a housing loan
Section 80C provides tax benefits on the repayment of a home loan’s principal component, up to Rs.1.50 Lac.
In case of an under-construction property or self-construction of a property, your EMIs do not start unless the entire loan amount is disbursed, and this is usually linked to the completion of construction.
If there is a delay in construction, your EMIs may start even before completion of the construction. In such a situation, you will not be able to benefit from tax deductions on principal repayments. Unless the property is completed and you have taken possession, the same cannot become taxable.
Deductions pertaining to interest paid on loan taken for construction of a house
Section 24 of the Income Tax Act provides deductions, with respect to the interest paid on money borrowed for the purchase, construction, repairs, renovation or reconstruction of a house.
Under this section, you can claim tax benefits on the interest paid during the period before you took possession, in five equal installments beginning from the year of completion of construction. If there are delays in completion of construction, your right to claim the interest paid on the loan will also be delayed.
Moreover, the time required for the completion of construction will also determine the amount you can claim for interest, in case the house is self-occupied. If construction is completed within 5 years from the end of the financial year in which the money was borrowed, you can claim interest up to Rs.2 Lac. However, if the delay exceeds 5 years, your entitlement gets curtailed to Rs.30,000 in a year.
This amount of interest entitlement is for the current year’s interest, as well as for amortised portion of the pre-EMI interest, taken together.
For a let-out property, you can claim full interest benefit, even if construction is delayed.
Authored by Goel Ganga Developments, one of the best real estate builders and developers in Pune