Know about the Finance and Investments Terms

There are a number of tax benefits that you can qualify for, if you’re paying off a construction loan. There are certain conditions to availing these benefits. You are not eligible for this tax exemption if the construction of your house is not complete, or you have not yet received possession.

A delay in construction can adversely affect your tax returns. Not only are you hampered by this delay, you’ll have to pay taxes during the entire period of construction. That’s not an easy pill to swallow for anyone. But, as bleak as it may seem, there are ways that you can profit out of this. 

Understanding the terminologies and their effects such as under construction house, Home Loan tax benefits, and real estate bill, can help mitigate the situation.

Prior Period

The time starting from the date of borrowal of the Home Loan upto the end of the financial year, immediately preceding the year in which construction was completed is known as prior period.

It is also known as pre-construction period or under construction period.

Prior period interest

The interest amount paid during the prior period is known as Prior Period Interest.

Old Rule

The house construction needs to be completed within 3 years from the end of the financial year, in which the loan was provided to you.

Upcoming Rule

Many prospective homeowners won’t get possession of their houses or complete the construction in time. Understanding this situation, a new provision that will be effective from 2017 claims that deduction on interest paid for Home Loan for construction of a housing property shall be available if construction was completed within 5 years from the end of the financial year in which the loan was borrowed.

Low prices of under construction properties might attract you. However, you need to understand the possible repercussions.

If the construction of your house gets delayed, possibly due to a default, you will still have to pay the interest to the bank.

Deductibility

However, the interest can be accumulated till the year in which the construction is complete. One-fifth of it is allowed each year for 5 years from the first year, along with the interest of the respective year. The exemption of Rs.2 lakhs acts as a combined limit for interest of that year along with one-fifth of the construction period interest.

The delay in housing construction leads to an increase in construction period interest. It also increases the chances of a part of the interest not being eligible for tax deductions.

Know about Home Construction Loan tax deduction of Rs.30,000 annually for housing loan interest. However, if you complete the construction of the house within 3 years, this limit is increased upto Rs.2 lakhs.

Real Estate Regulatory Bill

The Real Estate (Regulation and Development) Bill, 2016 protects the interest of home-buyers like you.

This act makes the registration of projects mandatory, including those that have not been completed or occupied.

With this act in place, builders will have to set aside 70% of the funds they collected from you. They have to pay you the acquired interest, in case of any delay in completion.

This act reduces housing delays, and ensures that builders speed up work.

The adverse effects will be prevented with this new bill. You can apply for a Home Construction Loan, with less anxiety now. If you’re looking to apply online, then websites such as Bajaj Finserv can help you with the process. 

Home construction loan documents required include loan application, photograph, identity proof, address proof, income details like salary slips, and bank account statements.

If you’re unsure about how much interest you’ll end up paying, use the online home construction loan eligibility calculator to find out the interest rate and amount.