How can a taxpayer save money while investing in an under-construction property?

The government of India has introduced various sections in the Income Tax Act which provide relief to taxpayers through rebates. Taxpayers who have invested in under-construction property can save a lot of taxes by claiming rebates.

Tax Rebate on Under construction

With rising property prices, buying a house is a dream that can become difficult for the common people to fulfil. Getting a home loan is one of the most common ways to fulfil this dream. Even with a home loan buying a house can become very costly, so to save money, a buyer can choose to purchase or invest in an under-construction property.

Under-construction properties are houses or living spaces which are yet to be constructed or which have been partially constructed. These houses would become fully constructed in the upcoming years, and the buyer can take possession of the house after the completion of the construction. Under-construction properties are cheaper than constructed properties which can be affordable for buyers.

To aid the buyers in getting their own houses, the Government of India has introduced certain sections of the Income tax act. These sections allow buyers to claim rebates and save money on under-construction properties. Read on to learn more about these sections!

What are the Income Tax Act sections for a rebate on the under-construction property?

The different sections which can be used to get tax rebates on the under-construction property are:

Section 24B of the IT Act 1961: Under this section, a taxpayer can claim a deduction of up to Rs 2 lakhs for the interest on the home loan which was used to buy the property. However, it is crucial to note that the taxpayer can claim the deduction only after the construction is completed and the taxpayer obtains possession of the property. The deduction limit is for one financial year. The deduction limit is the sum of the interest paid before the completion of construction and the interest which has to be paid for the current financial year. The deduction can be claimed only if the construction is completed within 5 years of getting the home loan.

  1. Section 80C of the IT Act 1961:
    A home loan does not require the borrower to pay the principal amount borrowed before the construction of the property is complete. Once the construction is complete, the buyer must return the amount and interest. The buyer can avail of rebates for a maximum of Rs 1.5 lakhs each financial year on the repaid principal amount.
  2. Section 80EE of the IT Act 1961:
    If the taxpayer has exhausted the limit of Section 24B, they can avail of an additional benefit of Rs 50,000 under Section 80EE. 
  3. Section 80EEA of the IT Act 1961:
    As per Section 80EEA of the Income Tax Act 1961, the taxpayer can avail an additional rebate up to Rs 1,50,000 if the limits of Section 80C have been exhausted.

If the taxpayer has exhausted the limit of Section 80C, they can avail of an additional benefit of Rs 1,50,000 under Section 80EE. 

What are the steps to file for tax rebates on the under-construction property?

Tax rebates can only be claimed once the owner receives the possession of the property. This means that for any EMI paid or interest paid before the possession of the property a taxpayer can claim rebates only after the completion of the construction. The tax rebates can be claimed as a part of the ITR which is filed by each taxpayer. The ITR once approved by the income tax department will provide the rebates to the taxpayer.

The basic steps of getting tax rebates on under-construction property are:

  • Get a home loan:

Before applying for a tax rebate, you need to get a loan from a bank or other financial institution to buy or build a home.

  • Record all transactions:

Keep track of any interest payments made on your home loan since you may be eligible for a tax credit of up to Rs. 2 lakhs on those payments.

  • File your income tax returns: 

You can claim the tax credit by including the specifics of the interest you paid on the home loan when you file your income tax returns.

  • Offer supporting documentation while filing returns:

The supporting documentation, such as evidence of the mortgage (such as loan agreement and loan statements) or proof of the interest paid by the buyer, can be submitted with the application for a tax rebate. This documentation can make it easier for the tax department to validate the claim and process the refund.

Final Words

Purchasing a house or reconstructing a house can be difficult and costly. Therefore, taxpayers must understand the rebates they can claim to reduce the financial burden as much as possible. 


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