If you take a home loan for an under-construction property, you cannot claim tax deductions during the construction phase. All housing loan tax benefits, including principal repayment, regular interest, and accumulated pre-construction interest, begin only after the financial year in which the construction was fully completed. To avail of the income tax rebate on a housing loan, you must have taken possession of the property. Once you meet these conditions, you can add the total interest paid during the construction phase and claim it in five equal yearly installments.
The tax benefits for an under-construction home loan can be claimed only after the construction is completed and you have taken possession of the property.
Purchasing a new home is a dream for many, but it can be tough on the pockets as real estate prices are continually increasing. That is why most people opt for home loans to enjoy a smooth process of moving into their new homes, as today, the house loan rates are highly affordable and come with additional benefits. Also, there are several income tax benefits on home loans that one can avail of, making them a popular way to finance the purchase of properties.
Apart from income tax rebates on home loans, another way to reduce the financial burden of purchasing a house of your own is by availing of an under-construction home loan with tax benefits. Investing in an under-construction property can help you retain some cash, as there are a few tax exemptions you can apply for after acquiring the fully constructed house. Besides, under-construction houses generally quote a lower price than constructed ones.
Here’s how you can avail of home loan tax benefits for under-construction property.
What is the prior period or under-construction period?
The prior period or under-construction period refers to the time between the initiation of a house loan and the completion of the property or possession. The property is being built during this phase but is not ready for possession or use.
During this period, you cannot deduct the loan interest you pay in this time. However, you can claim this interest in five equal installments starting from the year of completion or acquisition.
What are the tax deductions on under-construction property?
If you purchase an under-construction property by taking a home loan, you can avail of home loan tax benefits for under-construction property.
Suppose you buy a property that is being constructed and are currently paying the EMIs for the loan. In that case, you can claim tax deductions on the principal amount (up to Rs. 1.5 lakhs) under Section 80C of the Income Tax Act, 1961.
Also, apart from deductions on the principal amount, you can also claim tax benefits on your home loan interest payments.
What are the tax deductions on interest paid pre-possession of the property?
Taking a house loan to purchase your dream home is now more convenient than ever, as you also get exemptions for interest on housing loans under Section 24 of the Income Tax Act. Combined with tax exemptions on the principal amount, a home loan for under-construction property makes your dream house more affordable.
Yes, you can claim deductions on the interest paid on the house loan before possession, albeit after the construction is complete and the property is ready for occupancy. If the construction is still underway or you use the loan to purchase a plot, you cannot claim any exemption for interest on a housing loan. Section 24 also puts a limit on benefits you can claim, and you can only claim an amount of up to Rs. 2,00,000 in this case.
Meanwhile, the interest you pay before possession gets accumulated. Once you claim a tax exemption on this interest, you can reclaim this amount in five installments after the construction is completed.
Home buyers claim benefits on interest paid even in the pre-construction period under special circumstances.
The Section 80EEA of the Income Tax Act allows you to claim a deduction on interest paid on a housing loan up to Rs. 1,50,000 regardless of the restrictions of Section 24, given you fulfill the following conditions:
- Your housing loan was sanctioned during the period starting between 1st April 2019 and 31st March 2022.
- The residential house property’s stamp value does not exceed Rs. 45 lakh.
- You do not own any residential house property on the date of sanction of the loan.
If you tick all the above boxes, your home loan on the under-construction property will be much more affordable. You would be eligible for income tax benefits on the home loan’s interest even before the construction is complete.
To have an exact estimate of this amount, you can use a home loan EMI calculator online.
What are the stamp duty benefits on under-construction properties?
You can claim an income tax rebate on a home loan on the amount paid towards stamp duty and registration charges under Section 80C of the ITA. However, the benefit is only available after the construction has been completed and you are in possession of the property.
Key conditions and rules
- Eligibility: The benefit is available to individual taxpayers under Section 80C, provided they file returns under the old tax regime.
- Property type: The benefit applies to a residential house property for which the stamp duty and registration charges are paid.
- Lock-in period: If the property is sold within five years from the end of the financial year in which possession is obtained, the deduction claimed earlier may be added back to taxable income.
- New tax regime: The Section 80C deduction for stamp duty and registration charges is not available under the new tax regime.
- Overall limit: Stamp duty and registration charges are included in the combined Rs. 1.5 lakh Section 80C limit.
Additionally, if the property you are purchasing has a stamp duty under Rs. 45 lakhs, you can also avail of a tax deduction of up to Rs. 1.5 lakhs for interest paid on the loan. This provision is available to homeowners under Section 80 EEA of the Income Tax Act.
What are the home loan tax benefits under Section 24B?
Section 24B of the Income Tax Act provides tax benefits on the interest component of the home loans. For a home loan for a ready-to-move-in property, you can claim a deduction of up to Rs. 2 lakhs annually on the interest paid on your home loan.
In the case of under-construction properties, you can claim a deduction on the interest payments made while the construction is ongoing, only once the construction is complete and the property is ready for possession. You can claim this deduction in five equal installments only after the completion of the property construction.
Once the construction is complete and you’re still repaying the home loan, you can claim tax benefits up to Rs. 2 lakhs in a financial year on the interest repayment, as usual, under Section 24B.
These benefits help reduce taxable income, providing significant tax savings for homeowners and making home loans more affordable.
What are the tax benefits for an under-construction house under Section 80C?
Buying an under-construction house can offer several tax benefits. These include:
- Principal repayment: Section 80C allows a deduction of up to Rs. 1.5 lakh for the principal portion of home loan repayments. The deduction depends on the overall Section 80C limit.
- Stamp duty and registration charges: Section 80C lets you claim a deduction on the stamp duty and registration charges you pay for the property. However, before claiming this deduction, the property’s construction must be completed, and you must have its possession.
- Home loan interest: If you are a first-time homebuyer, you can claim an additional deduction of up to Rs. 1.5 lakh on home loan interest under Section 80EEA if the stamp duty value of the property does not exceed Rs. 45 lakh.
Together, these provisions can help reduce your taxable income and lower the overall cost of buying an under-construction home.
What are the tax benefits for an under-construction house under Section 80EEA?
Section 80EEA provides additional tax benefits for borrowers on payments made towards interest repayment during the pre-construction phase if they meet specific criteria.
Under this section, you can claim an additional deduction of up to Rs. 1.5 lakh on the interest paid on home loans for properties with a stamp duty value of up to Rs. 45 lakh. This benefit is over and above the Rs. 2 lakh deduction under Section 24B.
However, to be eligible, the loan must be sanctioned between April 1, 2019, and March 31, 2022. The property should be an under-construction house, and the taxpayer should not own any other residential property at the time of loan sanction. This provision aims to promote affordable housing and ease the financial burden on first-time homebuyers.
What are the GST and additional charges on under-construction property?
When you buy an under-construction home, GST on under-construction property is an added cost to factor in. As per current GST rules for property, GST is applicable on under-construction properties but not on ready-to-move-in homes with completion certificates. This tax directly impacts overall under-construction property costs.
Apart from GST, you should also plan for additional charges a home purchase may involve. These include stamp duty, registration charges, maintenance deposits, parking fees, and society charges.
How do delays in construction affect your home loan tax benefits?
Construction delays can change how and when you claim tax benefits on your home loan. Delays can affect your home loan tax benefits if possession is pushed beyond the expected timeline, extending the pre-construction period tax rules. While you continue paying interest on the home loan, some tax benefits may have to wait until construction is completed and you receive possession.
Here’s how delays affect you:
During construction, you may have to pay pre-EMI, which mainly covers the interest on the amount already disbursed. A longer construction period means you may continue paying pre-EMI for an extended period without being able to use the property.
Construction delays can postpone your home loan interest tax benefits.
- Interest deduction: Under Section 24(b), interest paid during the pre-construction period can generally be claimed in five equal installments starting from the year in which construction is completed, and possession is received.
- Longer accumulation: A delay means pre-construction interest can continue to accumulate for a longer period before you can claim the deduction.
- Completion timelines: If construction exceeds the prescribed timelines under tax rules, the maximum deduction available for interest on a self-occupied property may be affected.
- The rent vs. EMI trap
If you continue living in a rented house while paying pre-EMI or EMI on your under-construction home, your monthly housing expenses can rise. This can put pressure on your budget until you receive possession.
- Potential for forced EMIs
If the lender’s repayment schedule starts before construction is complete, you may have to pay full EMIs even though the property is not ready. As a result, the delay can increase your financial burden.
- Escalating construction costs
Long delays can increase project costs due to higher material and labor prices. In some cases, this may result in additional financial requirements, increasing the overall cost of owning the property.
How to claim interest on under-construction property?
Claiming interest on under construction property works differently from ready-to-move homes. During the construction phase, you cannot immediately claim interest paid on your home loan.
Here’s how it works:
- All interest paid during construction is treated as pre-construction interest.
- This accumulated amount becomes eligible for a pre-construction interest claim only after possession.
- Under Section 24 pre-construction interest, the total interest is claimed in five equal annual installments starting from the year of completion.
- The annual limit for interest deduction under construction remains Rs. 2 lakh, including current-year interest plus one installment of pre-construction interest.
What are the key considerations while availing of an under-construction property home loan?
An under-construction property home loan needs careful planning as construction delays can increase your interest, rent, and overall borrowing cost. You must check your loan eligibility, compare lenders, and use a home loan EMI calculator to plan repayments.
Key rules and conditions
- Timing: Tax benefits generally begin after construction is completed and possession is received.
- Pre-construction period: Pre-construction interest can generally be claimed in five equal installments after completion.
- Calculation: Calculate your EMI and total interest before choosing the loan.
- Annual limit: Tax deduction limits depend on the property type and applicable tax rules.
How to claim?
- Get the interest certificatefrom your lender showing interest and principal paid.
- File your ITRwith eligible deductions.
- Verify the deadline to ensure construction is completed on time, and you don’t lose out on the benefits.
Tip: Keep your loan agreement, sale agreement, payment receipts, and interest certificate safely for claiming the benefits. Compare lenders on interest rates, fees, repayment terms, and disbursement conditions before applying.
Wrapping up
There are various income tax benefits on home loans for under-construction property. So, if you’re planning to construct a home, then make sure to check your home loan eligibility, calculate the EMI with a home loan EMI calculator and reach out to Tata Capital for a quick loan. We offer home loans at some of the most competitive interest rates and flexible tenure. Apart from this, you can use our home loan eligibility calculator to enhance your eligibility parameters. Visit Tata Capital website or download the instant loan app and apply for home loans online, right from your home. Enjoy a quick disbursal and hassle-free documentation process with us and move into your dream home without any delay!
FAQs
For under-construction property, tax deductions on home loan interest can be claimed only after the construction is complete. Interest payments made towards the loan during pre-construction are eligible for a claim in five equal instalments starting from the year of possession.
Deductions under Section 24B on home loan interest payments cannot be claimed during construction. These deductions are available only after the property is completed and possession is taken.
The tax benefit on the principal repayment under Section 80C can only be claimed after the construction of the property is complete and possession is taken.
After exhausting the Section 24B limit, you can claim additional deductions under Section 80EEA for first-time homebuyers, allowing an extra Rs. 1.5 lakhs deduction on home loan interest for properties with a stamp value of up to Rs. 45 lakhs.
Section 54 allows you to claim tax exemptions on long-term capital gains from the sale of a property if the proceeds from the sale are reinvested into constructing or purchasing a residential property. The new property must be purchased within three years from the sale date of the original property.
The tax benefit is available if you’re purchasing the property jointly with your spouse or family, provided you are a co-owner and co-borrower. Each co-owner can claim deductions on principal and interest based on their ownership share and individual eligibility.
You can claim tax benefits by reinvesting the capital gains from selling your old property into an under-construction home under Section 54. Home loan interest deductions apply only after possession, while pre-construction interest can be claimed in five instalments post-completion.
NRIs can claim home loan tax benefits for under-construction properties in India if the property is located in India. Tax deductions on interest and principal follow the same rules as resident Indians, subject to possession and applicable sections of the Income Tax Act.
You can generally start claiming home loan interest benefits after construction is completed and possession is received. You can claim pre-construction interest in five equal installments.
If construction is not completed within five years, the interest deduction for a self-occupied property may be restricted to Rs. 30,000.
Yes. If you live in rented accommodation while your home is under construction, you may claim HRA and eligible home loan tax benefits.
Yes. Once the property qualifies as self-occupied, the home-loan interest deduction is generally capped at Rs. 2 lakh under the old regime. For rented under-construction properties, actual interest may be deductible after construction is completed.
Interest deductions on under-construction properties start after the property is completed. Additionally, the combined limit on tax benefits under Section 80C is Rs. 1.5 lakh. Therefore, if you own multiple under-construction properties, to claim tax benefits at the same time, you must check the status of the property’s construction and the available limit under Section 80C.
21 August 2026
12 mins read
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