In this article I will be writing about the land loans and the tax benefits involved in land loans. Not all the land loans are eligible for tax benefits, there is certain regulations to get the benefits on loan repayment of the land loans. Many people are assuming that only the home loans are eligible for tax exemption, but the land loans are not eligible for tax deduction. The intention of this article is to explore the option for availing tax benefits on land loans with suitable example scenario. If you have any doubts, please post it in the comments section. I will be happy to answer all your questions. You can subscribe to our future articles here.
Rules on Land Loans
1. Tax Benefits
It is not allowed to claim the tax benefits for only the land loans. But, you can claim the tax benefits if you are constructing a house on the land purchased, then the entire amount is can be deducted as tax exemption.
2. Construction Phase
You can get the tax benefits only after the completion of the house construction. The period when the construction is happening, you are not eligible to claim the tax benefits. The construction of the house must be started on the given time by the banks or income tax authority. It is 2 years from the date of availing the loans. If you are not able to start the construction of the house, then it will be considered as the commercial loans and no exception on the tax benefits.
SBI is offering the SBI Reality Home Loans for the purpose of buying the land and constructing the house. They have mentioned in the site as:
House construction should commence within 2 years from the date of availment of ‘SBI-Realty’ Housing Loan
Customers are also eligible to avail another Housing Loan for construction of house on the plot financed above with the benefit of running both the loans concurrently.
3. Principal Repayment while Construction
If you have paid principal amount as part of the loan repayment during the house construction, the amount can not be claimed for the tax deduction. Only the interest paid can be claimed as tax deduction during the construction period. This is an important point to consider while availing the home loans and thinking of the tax benefits.
4. Interest Paid
If you paid the interest during the construction phase, you can claim the tax benefits in five consequent years of equal installments.
For example Mr.X got the loan of Rs.300000 for buying the land. Later he also got the loan of Rs.800000 for constructing the house. In this case, he is eligible to claim the tax benefits on interest paid for the entire amount Rs.1100000. But, the tax deduction can be claimed only after the construction of the house is completed.
In this article I have explained about how to get the tax benefits for land loans. This idea will be useful when you are buying the land and constructing the house on it. Thank you for reading this article. If you have any doubts please post it in the comments section. You can subscribe to our future articles here.