Section 80EEA for Under-Construction Properties - How to Claim Tax Benefits

The 80EEA deduction on a home loan is an essential provision that can help you save on your tax liability when you have taken a housing loan for purchasing a property. But, if you are planning to buy an under-construction property in India, you might be wondering whether you can claim any home loan interest tax benefit under the same section. In this comprehensive guide, we will delve into the specifics of Section 80EEA of the Income Tax Act and its applicability to under-construction properties, ensuring you are well-informed and can maximize your benefits.

Understanding Section 80EEA of the Income Tax Act

Before we explore if an 80EEA home loan interest deduction is possible for under-construction properties, it's crucial to understand what is Section 80EEA. 

Section 80EEA was introduced in the Income Tax Act to provide relief to homebuyers by granting them deductions on the interest paid on home loans, subject to a maximum limit of Rs. 1.5 Lakh per year. This deduction is separate from other housing loan interest deduction sections, such as Section 24 and Section 80C.

Applicability of Section 80EEA Deduction on Under-Construction Property

Now, let's address the main question: Can you claim the 80EEA deduction for an under-construction property in India? The answer is no, but not without certain caveats. 

One reason why you can’t enjoy a home loan interest tax benefit under Section 80EEA for an under-construction property is that you need a possession certificate to claim it. The certificate is only issued once construction is complete and handover is done. 

Now, know that tax deduction is available but from the financial year in which the construction is completed, or the property's possession is taken, whichever is earlier. This means that until the property is ready for possession, you cannot claim the deduction. Once the construction is completed, you can start claiming the 80EEA deduction in subsequent years. But to be eligible for the 80EEA deduction, you must be a first-time homebuyer. This means you should not have previously owned any residential property in your name. 

So, how do you claim tax benefits for an under-construction property?

There is a way but not under Section 80EEA of the Income Tax Act, 1961, but under Section 24.  

Say that you have a home loan but construction of the property has not begun yet. However, your home loan EMIs have started, which means interest payments have started. Now, the period starting from the time of the loan sanction till the completion of construction (which also includes the time that the property was under construction) is referred to as the pre-construction period. 

The catch here is that the interest that you have paid throughout this period can be claimed as a home loan interest tax exemption but only after construction ends, and not during. This can be done under Section 24 of the Income Tax Act. The cumulative interest that you have paid during this time can be deducted, subject to a maximum of Rs 2 Lakhs. Also, note that you have to claim these benefits in five equal annual instalments starting from the year construction is completed. 

This, technically, means that you do get some tax relief for an under-construction property, just not under Section 80EEA of the Income Tax Act. 

Irrespective of the property being under construction, you could still be enjoying tax deductions under Section 80C on the principal component of your home loan. However, you must reach out to a financial advisor to figure out how to maximize your savings.

To Sum Up!

While claiming an 80EEA deduction for under-construction properties in India is not possible, you could enjoy deductions for the interest paid under Section 24 instead. This is on top of the Rs 1.5 Lakhs that you can claim under Section 80C for the principal amount repaid. However, remember that the deduction becomes available only when the construction is completed or when you take possession of the property, whichever is earlier.

Check out IIFL Home Loans for flexible housing finance options at competitive interest rates. You could use the loan EMI calculator to get accurate estimates, which you can then use to discuss potential tax benefits. 

FAQs

1. Can I get income tax benefit on under-construction property?

Yes, you get income tax benefits for an under-construction property under Sections 24 and 80C of the Income Tax Act of India, subject to maximum deduction limits. 

2. Can I get a home loan for an under-construction property?

Yes, you can secure financing for your under-construction property. You can reach out to IIFL Home Loans or go through their products for more information. 

3. What are the eligibility criteria to get a home loan for an under-construction property?

At IIFL Home Loans, you have to meet the following criteria:

• Salaried or self-employed Indian resident aged 18 to 75 years. 

• A copy of the approved plan of the under-construction property

4. Can I show home loan interest before possession?

To claim tax benefits on your home loan, you need to show your possession certificate. Only after you have it, can you claim any tax deductions on the interest paid.