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Income Tax News: Is Under Construction Property Eligible for Tax Exemption? Here’s What You Must Know

Claim Tax Benefit on Home Loan Interest During Construction - 5-Year Installment & More

Income Tax News: Obtaining a house loan offers several financial benefits, one of which is the ability to deduct interest paid, as per section 24(b) of the Income Tax Act. Navigating the regulations controlling these deductions can be a little challenging, particularly when it comes to the interest you paid on your house while it was being built.

Pre-Construction Interest

The interest you pay on your house loan during the construction of your property is known as “pre-construction interest.” Pre-construction interest cannot be deducted as soon as it is accumulated, in contrast to regular interest deductions.

Alternatively, you can deduct this amount over the course of five equal payments, starting from the fiscal year in which the property’s construction is finished and ownership is obtained. It’s important to remember that this deduction cannot be claimed while the work is still underway; it may only be used when the construction is completed or possession is obtained.

Completion of Construction is Paramount

Interest on borrowed capital deductions is permitted under Section 24(b), but only once construction is complete. On the other hand, any interest owed before the year of property acquisition or construction may be collected over a period of five years, beginning from the year of purchase or construction completion.

To qualify for this deduction, the building of the property must be finished within five years of the end of the fiscal year in which the home loan was obtained. If this condition not be fulfilled, the deduction cap may be reduced from Rs 2 lakh to Rs 30,000.

Limits and Exemptions

It is important to remember that Section 24(b) of the Income Tax Act caps the yearly deduction for interest, including pre-construction interest and normal annual interest, at Rs 2 lakh for self-occupied buildings. Nonetheless, there is no cap on interest deductions for rental properties.

Section 24(b) of the new tax law prohibits deductions for self-occupied properties. However, regardless of the applicable tax regimes, let-out properties are eligible for an unlimited deduction.

Document and Seek Guidance

To properly claim this deduction, interest payments made throughout the building period must be kept up to date with appropriate documentation. Considering the intricacies involved, it is strongly advised to consult a tax professional for precise computations and efficient tax planning.

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