It’s a dream for everyone to build a home. To convert the dream many people take home loans and plot loans. The home loan includes the tax benefit under Section 80(C) and Section 24 (b) but people are confused whether there are any plot loan tax benefits or not? Let’s understand here.
A plot loan is a loan meant for buying land or a plot. You can use it to build a house or for investment. This loan is only for buying land, which means banks will sanction loans on the basis of land value and not for building or constructing anything else. Also, you need to know that Plot loans are only sanctioned for residential plots.
Did you know? Plot loans are also available to buy industrial plots for any commercial purpose. They are called commercial plot loans.
If the plot remains vacant and is not used for construction, no tax benefits can be claimed on the interest or principal repayment. Tax benefits are exclusively available when the plot is utilized for constructing a residential property.
If you are buying a plot for profit, let's say you are buying a plot with the intention that the value of the plot will increase in the near future then you are not eligible for the loan.
Rahul decides to invest in a plot of land for Rs. 30 lakhs and get a loan. His plan is to construct a house on the plot within the next two years, estimated to cost Rs. 50 lakhs. Rahul then applies for a home loan to cover the construction expenses. With a combined total of Rs. 80 lakhs.
So, you must have a question: can Rahul claim tax benefits? Rahul cannot claim tax benefits on the plot loan because construction has not started. Rahul will be eligible for deduction in the year when the construction gets completed. After completion Rahul can avail the benefit.
Under Section 24 of the Income Tax Act, you can claim a deduction on the interest paid on a plot loan, but with certain conditions:
Construction Requirement: The interest deduction is applicable only if you construct a house on the plot that means construction must be completed and the borrower should occupy the home.
Rent: The deduction will not happen if you rent your house after complete and not residing in it.
Completion Timeline: The construction must be completed 1-2 years from when the loan was taken. Failure to meet this timeline can disqualify you from claiming the deduction.
Deduction Limit: You can claim a deduction of up to ₹2,00,000 (2 lakh) per year on the interest paid.
Did you know? You can convert a plot loan to a home loan by giving proper documents to the bank such as occupancy certificate and other as needed.
The principal repayment of a plot loan is allowed for deduction for some portion of the home and plot loan and this section is for principal amount not interest rate. Section 80C allows a deduction of up to ₹1,50,000 per year for principal repayment. Expenses concerning the registration fees and transfer of plot title are eligible for Section 80C deduction, provided they are paid in the same year when home construction is finished.
Interest paid during the pre-construction period can be claimed as a deduction under Income tax 1961 in five equal installments starting from the year in which the construction is completed. If you start building at the beginning of the fiscal year, then you can get a deduction of pre-construction rate of interest. You can get up to 2 lakh.
Plot loans give you the flexibility to build your dream home at your own speed, but it's important to understand the tax rules. Meeting eligibility criteria, sticking to construction timelines, and keeping good records can maximize your tax benefits. Talking to a tax advisor can also guide you through these rules and help you make smart choices. Whether you're building right away or investing, knowing the tax benefits can help you plan your finances better and reach your goals.
How can EazyBankLoan help you in taking a loan? We understand the process of procuring a loan can be stressful. That is why we take care of your Loan application process, saving you time and hassle by handling the paperwork and communication with the loan providers.
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No, tax benefits on plot loans are available only if you construct a residential property on the plot within the specified timeline.
You can claim a deduction of up to ₹2,00,000 per year on the interest paid if the house is self-occupied. For let-out properties, there is no upper limit on the interest deduction.
Yes, you can claim a deduction on the interest paid during the pre-construction period in five equal installments starting from the year in which the construction is completed.
If the construction is not completed within 1-2 years, you will not be eligible to claim the interest deduction under Section 24.
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