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Claiming Home Loan Tax Benefits on Under-Construction Property: What You Need to Know
- •Tax benefits on home loans for under-construction properties can generally only be claimed from the financial year construction is completed.
- •Interest paid during the construction period can be claimed in five equal installments starting from the completion year.
- •For self-occupied properties under the old tax regime, the interest claim is capped at Rs 2 lakh, with no benefit under the new tax regime.
- •If the property is let out, the full interest can be claimed under the old tax regime, with a set-off limit of Rs 2 lakh against other income.
- •No tax benefits for the principal portion of loan repayments are allowed until construction is complete, and this deduction is unavailable under the new tax regime.
Key Questions Answered
Homebuyers can claim tax benefits on a home loan for an under-construction property only starting from the financial year in which the construction is completed. Regarding the interest paid during the construction period, it can be claimed in five equal instalments beginning from that completion year.
Under the old tax regime, self-occupied properties allow total construction-period interest claims within a Rs 2 lakh overall limit, whereas let-out properties allow the full interest. Under the new tax regime, self-occupied properties get no interest deduction, and let-out properties limit interest to taxable rent. For principal repayments, no deduction is allowed before construction completion, meaning earlier years' principal benefits are lost forever.
If a self-occupied property is not ready for occupation within five years from the end of the financial year in which the first loan disbursement is made, the overall limit for interest deduction drops to Rs 30,000.
