How to Save Money by Claiming for Tax Deductions on Your Home Loans?

When you are buying a house there are taxes that you need to pay when you get the possession of the house. But there are ways where you can save on these taxes. One of the ways you can save these taxes is when you invest in an under construction house. Under the section 80C of the Indian income tax code, we do not have to pay taxes for a property when it is under construction.

Here are a few conditions where the tax deductions are not applicable:

  1. If you have any property that is under construction you will not have to pay any taxes on the EMI of your loans

  2. Until the construction of the property is complete and the possession of the property is given to the owner it is considered as ‘Prior Period’

  3. You have to pay just the interest on the loan amount to the lender, this period is called as ‘Prior Period Interest’

If there is any amount paid by you for the registration and stamp duty, you will have to pay the taxes even if you have not taken a loan. To enjoy this benefit you have to keep the construction completion certificate. If you sell the property within 5 years of purchase you will have to pay the taxes to the government for the financial year when the property was sold. The whole interest amount will be claimed as a tax deduction if the house is not used for the self-occupation purpose.

Important points to be considered for Home Loan tax deductions:

  1. If the construction of the property is completed within 3 years of taking a Home Loan only then a tax deduction can be availed.

  2. A tax deduction will not be applicable for any commission you have paid for the arrangement of the loan.

  3. The money you pay for the registration and the stamp duty is eligible for stamp deductions.

  4. The person who has applied for the loan can enjoy tax benefits and these benefits cannot be availed by his successor.

To claim these deductions it is important to share the documents and statements confirming the amount paid for the loan repayment amount. The documents for the completion of the house construction need to be furnished, these documents will serve as taxable income of the applicant and eligible tax will be deducted. The applicant has to complete the construction of the house within the given period. During the financial year, if you pay any amount for the interest rates of the Home Loan, you will be charged for tax deductions.

What if the property is sold within 5 years of construction?

If you have built the property by financing it through a Home Loan and you sell it within 5 years of completion, then you will have taxes implied on the loan. The deductions you have enjoyed will be reversed and you will have to pay the entire tax amount.

But if you sell the property to buy or invest in any other under construction house then you can avail exemptions. The new house has to be constructed within 3 years of the sale of an old property. You can only enjoy the benefits of the tax deductions if you are familiar with the terms and conditions of the deduction process.


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