How To Deduct Interest On A Home Loan From Your Taxes

Most of us know that a person who takes out a home loan can get tax breaks on the principal and interest they pay on loan. But only a small number of us know the benefits of getting a home loan to build a house.


Yes, you can still get tax breaks even if your house is still being built. You have to be smart about it. This article will show you how to be a smart borrower and keep some of your money from being taxed when you get a home loan for a house that is still being built.


If you have a home loan for a house that is still being built, you may be able to get a tax break. Under Section 80C of the Income Tax Act, you can get a tax break of up to 2 Lakhs on the interest you pay in a year and up to 1.5 Lakhs on the principal.


But it’s important to remember that this tax benefit for a home loan that is being built cannot be used if the payments are being made before the phase. There are some ways to buy a house where the buyer doesn’t have to pay anything toward the loan’s EMI. When this happens, these tax breaks don’t work.


Tax Benefits for Home Loans


There will be no tax on the interest paid on EMI for any property still being built.


  • Part 24 of the IT Act
  • You can deduct up to five interest payments from the year the building is done during the pre-construction period.
  • The time until construction is done or property is bought is called the Prior Period.
  • Pre-construction refers to when the money was borrowed and the house was built.
  • The borrower only has to pay the lender interest on the loan amount until they get the house. This is called PPI or Prior Period Interest.
  • If the borrower uses the money from the home loan to make renovations, repairs, or rebuilding, the borrower can’t get a tax break.
  • If you pay back the loan’s principal during the pre-construction period, you won’t be able to get any tax breaks.
  • You can’t get a tax break when you buy a plot or a piece of land.


Under Section 80C of the IT Act, you can only get a tax break if you make the payment, no matter what year. Even if the borrower hasn’t taken out a loan, they can get a tax break for any amount paid in registration fees or stamp duty. The borrower must prove that the house has been built to get this benefit.


After all of this, it’s important to know that the assessee who got tax deductions must pay back the deduction amounts if they sell the property within five years of the end of the Financial Year in which the house was taken possession.


The Indian Government will get back the deductions made under Section 80C during the financial year where the house was sold. If you don’t use the home loan to live in it, you can deduct the whole amount of interest from your taxes. This is allowed by Section 24. There is no constraint on how many you can deduct from your taxes for the property you don’t live in.


Under Section 24, you can deduct the interest you pay on your home loan from your taxes. This is done on an accrual basis. So, under Section 24, all deductions must be claimed in the same year, even if no payment is made. It’s also essential that the house is being built within three years of getting a loan. After this time, you can’t get a tax break on the interest.


Important Things to Think About for Tax Breaks on Home Loans


  • Shew Kissan Bhatter v. CIT (1973) 89 ITR 61(SC) says that interest paid on a debt is not tax-deductible.
  • You can only obtain the tax break if you finish building your home within three years of getting a home loan.
  • No tax deductions for commissions paid to set up a home loan can be made.
  • Money spent on registering a house and paying stamp duty can be taken off your taxes.
  • If the owner’s house doesn’t bring in any money and the interest on the home loan is a loss, the owner can use that loss to offset income from other sources in the same financial year.
  • If the loss can’t be offset by income from other heads in the same financial year, it can be carried forward for up to the next eight financial years.
  • Only those who built or bought the property can get tax breaks. This benefit is given to the property’s next owner.


What happens if I sell the property within five years of finishing the home loan construction?


If this is the case, the home loan will have tax consequences. All the tax breaks you got because of this feature will be added back to your income tax. It will have to be paid for all at once. The only thing that will be taxed is your income for that particular, fiscal year.


On the other hand, if you decide to sell the property and use the money to build a house yourself, you can get exemptions on capital gains as long as the new house is finished within three years of selling the old house. Managing your taxes will be easier if you know the rules and how to determine the tax on a property still being built.


This will also save you a lot of money on taxes. You can get the most out of a financial year if you know what tax breaks you can get and apply for them at the right time. Keep looking for new deductions and changes in the law. This will assist you in tracking your income and determining your taxes.