Legal View: Know the Sync between Property Construction and Income Tax Rules

Don’t feel relaxed only be receiving approval of home loan as the next step is construction of a residential unit/property which plays an important role for availing the Income Tax rebate. It might sound new to many of the aspiring homeowners particularly to those who wish to have an independent home/villa. But, take this seriously as things related to the construction of a property can make you lose huge money which can be earn back. So, consider the below-given points and pay attention to the timely completion of property construction.

Property Construction.

Img : FinanceBuddha

1. Deductions for Homeloan Principle Amount Repayment:

The property owners are eligible for income tax deduction of rupees 1.50 lakhs under Section 80C on the repayment of a principal amount. If the property is under/self-construction then the deduction of EMI – Equated Monthly Installment will commence soon after the disbursal of the entire home loan amount from the bank/financial institution. Remember that in case of delay in completion of property construction the deduction of EMI will not be held back by the bank and will start after disbursal of the same.

Whereas in a regular case, the EMI is non-deductible until you obtain the property possession. But, the delay in construction completion will make you non-eligible applicant for claiming IT rebate on the principal amount repayment. This is because the Income tax benefit is only available for the property which is entitled as taxable under the section income from house property. So, don’t miss the Income Tax rebate and concentrate on the timely completion of property construction.

2. Deduction for Interest Paid on Availed Loan for Construction of Home:

The Section 24 of Income Tax Act makes you eligible for deduction for the interest paid on home loan which you lent for the purchase of property/construction of property/renovation-repair of the same. According to this clause a person can avail Income tax benefit on the interest paid for the home loan before acquiring possession. The interest paid before taking the possession is commonly known as Pre-EMI interest which is segregated into five equal parts and commence right from the year of construction completion.

Also, the delay in construction completion reflects in Income tax deduction. For example, the claim on paid interest is determined while keeping the construction completion tenure in mind particularly for those who have a self-occupied home.

3. Advantages of Tax Rebate Claim Exemption on Capital Gains:

The Section 54 and 54F of Income Tax law incorporates the provision for exemption on long-term Capital Gains with the condition that this hefty amount shall be used for the construction of a new home and which should be ready with construction completion in three years. Here, the Income-tax officer has right reject your claim for tax exemption after which one is required to make an appeal to higher authority for availing IT rebate.

4. Terms and Conditions to Avail Maximum Income Tax Rebate:

Your main focus should be the timely completion of property construction as it makes a person eligible for all Income Tax deductions/benefits. Usually, the completion of construction within the duration of five years from the end of Financial Year in which the home loan is availed helps you avail maximum benefit under Income tax. So, the timely completion of construction for residential property helps you avail deduction up to rupees 2 Lakhs.

Then, the delay in construction completion makes you lose claim under Income tax rules as an exceed in construction time limit over five-year return only rupees 30,000 in a year.

Next is the amount of interest calculated for the current year interest and the already paid Pre-EMI interest together.

Lastly, an applicant is eligible to claim for entire interest deduction only if he/she hires a tenant for the same property. Here, the person has dual benefit as the delay in construction completion is not a parameter for deduction.