Home loan tax benefits for an under-construction property?

Home loans can be availed for the ready possession homes, new construction homes, and resale properties. Most of the people in India prefer new construction homes to purchase new homes as the new homes provide better architecture plans, are designed with best-in-class amenities, and have a proper ventilation process. The loans can be availed at interest rates of 6-9% per annum from the banks or the NBFC’s. The interest rates for the home loans are on a continuous decline as the Repo rate of the RBI is on a continuous decline. Another reason people prefer new construction houses is the payment needs to be done in installments wise, and thus people get more time to pay the home loans. In the case of pre-approved loans, the banks also provide the facility wherein only the processing fees are being charged to the borrowers while the installments of the loans start after the possession of the flat. The banks can wait for up to 2 years, after which the installments begin to be charged to the borrower irrespective of the possession received. The under-construction properties take 2-4 years on average for the construction of the building, depending on the total floors constructed in the building.

As per the RERA rules, the real estate developers must give possession of flats on time to the flat buyers against failing. The Rera can charge a heavy penalty to the real estate developers. The under-construction houses have a long shelf life, proper design and are more spacious and airy than the old, dilapidated buildings. Thus the new construction properties are amongst the most preferred ones for home buyers. Due to the slow demand due to the Covid-19 situation, the flat sales are really slack. To increase the demand, Real estate developers are interested in offering heavy discounts & freebies to sell the unsold inventory. The new construction houses cost higher than the resale ones but are provided in better condition to the buyers. The Rera rules mandate the new construction properties to be sold on the carpet area only. Thus charges are taken only on the carpet area while previously it used to be sold on the super built-up area. The loans can be approved easily for the under-construction properties as the land records are once verified by the banks for clearance.

Following are the benefits for the under-construction properties for tax benefits:

· As the under-construction flats are cheaper than ready-possession flats, the loan liability on the properties would be less.

· The monthly installments can be paid higher to save on interest repayment. Thus the lower interest amount needs to be paid to the lender.

· The individual can pay the loans later on the pre-approved loans after two years or after possession, whichever is early.

· After the borrower starts repaying installments, the borrower can avail of tax benefits with immediate effect; thus, the borrower can save up to Rs.2 lakh beyond the tax slab exemption of Rs.2.5 lakh until the tenure of repayment of the loans.

· There are sometimes reductions on the government’s registration & stamp duty charges, which can benefit the new construction home buyers.

· Also, under the PMAY scheme for the new construction houses, an interest subsidy can be availed on the new construction homes up to Rs.2.67 lakhs.

The purchase of the new construction homes is beneficial as the flat buyer gets time to pay the installments on the pending amount on the flats. Also, the tenure for the new construction loans can be higher, so the installments charged can be lower, and also, the tax benefit can be obtained for a longer duration by the flat buyer.