Decoding Tax Savings: A Closer Look at Under-Construction Property Investments

 

Investing in under-construction property can provide unique tax benefits, making it an attractive option for homebuyers and investors alike. While the process requires careful planning, understanding the tax-saving opportunities can significantly reduce financial burdens. With the right knowledge, under-construction property investments can offer both long-term growth and short-term savings.

Here’s a concise breakdown of the key tax benefits, eligibility criteria, and considerations to keep in mind:

Key Tax Benefits for Under-Construction Properties

Section 24(b) – Interest on Home Loan

1. Deduction Limit: Up to ₹2 Lakh per year after possession.
2. Pre-Construction Interest: Deductible in 5 equal installments starting the year construction completes.
3. Conditions: Construction must finish within 5 years from the end of the financial year when the loan was taken. If delayed, the deduction reduces to ₹30,000/year.

Section 80C – Principal Repayment

1. Deduction Limit: Up to ₹1.5 Lakh/year for the principal amount after possession.
2. Stamp Duty and Registration: Deductible even during the pre-construction period.
3. Conditions: If sold within 5 years of possession, these benefits will be reversed.

Section 80EEA – Additional Interest Deduction

1. Deduction Limit: Up to ₹1.5 Lakh/year.
2. Eligibility:
3. First-time home buyer.
4. Loan sanctioned between 1st April 2019 and 31st March 2022.
5. Property stamp duty value ≤ ₹45 Lakh.
6. Carpet area ≤ 645 sq. ft. (metro) or 968 sq. ft. (non-metro).

4. Pre-Construction Period Deductions

• Deductible under Section 24(b) in 5 installments post-completion, provided the construction adheres to timelines and loan purposes.

Investment Tips and Risks

Plan for Delays

• Choose developers with a strong track record.
• Ensure construction completes within 5 years to maximize tax benefits.

Loan Considerations

• Regular EMI payments before possession focus on interest; principal repayment benefits (under 80C) start post-possession.

Selling Restrictions

• Selling within 5 years’ reverses tax benefits under Section 80C.
• For properties purchased with the sale of an old house, ensure timely completion (3 years from the sale date).

GST Rates

• Standard: 5% for under-construction properties.
• Affordable Housing (< ₹45 Lakh): 1%.

FAQs Simplified

• Max Tax Benefits?
  ₹2 Lakh (Section 24), ₹1.5 Lakh (Section 80C), and ₹1.5 Lakh (Section 80EEA if eligible).
• Delays in Construction?
  Minor delays won’t impact benefits, but completion within 5 years is crucial for maximum deductions.
• Self-Occupied vs. Rented
  Self-occupied: Max ₹2 Lakh deduction (interest).
  Rented: Full interest deductible without limit.

FAQs Simplified

• Max Tax Benefits?
  ₹2 Lakh (Section 24), ₹1.5 Lakh (Section 80C), and ₹1.5 Lakh (Section 80EEA if eligible).
• Delays in Construction?
  Minor delays won’t impact benefits, but completion within 5 years is crucial for maximum deductions.
• Self-Occupied vs. Rented
  Self-occupied: Max ₹2 Lakh deduction (interest). Rented: Full interest deductible without limit.
  
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