Under Construction Property Tax Exemption

Ask the Community Income Tax
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1

Hi,

Can employee claim deductions for under-construction property?
Also, Can they claim tax benefits on two home loans?

Suggestions please.

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Hi @Swati

I think No!

Deduction on home loan interest cannot be claimed when the house is under construction. This pre-construction interest can be claimed only after the construction is finished.

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Hi Swati,

You can claim the pre-construction interest in next 5 years once the construction is finished and you have taken the possession.

It is my understanding that you can claim for tax benefits on both the home loans. However someone should pitch in here. Thanks.

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The interest paid can be claimed as deduction only after the property is ready for possession. Any interest paid before possession is tax deductible in five instalments beginning from the year in which construction was completed subject to a cap of Rs 2 lakh if the property is self-occupied.

Yes… you can claim benefits on two home loans

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Yes true @shefalipatil both the loans can be benefitted.

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Generally, tax benefits can be availed only on the house claimed as self-occupied. In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income.

If you sell the property within 5 years of possession, any tax deductions already claimed will be reversed. However, the tax exemptions on interest paid will remain unchanged.

The owner of the property can claim tax benefits. If the spouse is a co-borrower, they can also file for tax deductions. In the case of a joint loan, both parties can claim for their share of the loan they pay.

1. Section 80C

  • Claim a maximum home loan tax deduction of up to Rs. 1.5 Lakh from your taxable income on the principal repayment.
  • This may include stamp duty and registration charges as well but can be claimed only once.

2. Section 24

  • Enjoy maximum deductions of up to Rs. 2 Lakh on the interest amount payable.
  • These deductions apply only on the property whose construction is finished within 5 years. If it doesn’t finish within this time frame, you can claim only up to Rs. 30,000.

3. Section 80EE

  • First-time home buyers can claim an additional Rs. 50,000 on the payable interest every financial year.
  • The Home Loan amount must not be more than Rs. 35 Lakh.
  • The property’s value must be within Rs. 50 Lakh.

Some Other Conditions to Note:

  1. The tax exemption is applicable only when construction of the property is complete, or you purchase a ready-to-move-in house.
  2. Enjoy these tax benefits on home loans every year and save significant amounts.
  3. If you sell off the property within 5 years of its possession, the claimed benefits shall get reversed and added to your income.
  4. You may purchase the property and let it out on rent. In that case, no maximum amount is applicable to claim as home loan tax exemption.
  5. When availing the home loan, if you continue to rent another house where is presently reside, you can claim tax benefits against HRA as well.
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