Plot loan is a variant of home loan, which can be availed not just by banks, and NBFCs but also through digital lenders like Canfin Home Loan or Navi Home loan. This loan option is disbursed by the financial institution to applicants whose basic requirement of a loan is to buy a piece of plot or land to construct a dream home. Most of you always look for tax benefits when placing an application for a loan. Often many of you wonder if the tax benefits can be availed for the plot loans also. While there are zero direct answers to this, it can safely be said that it all depends on what you intend to do with the bought plot or land. It is broadly classified into 2 major categories. –
∙ If you buy a land or plot and do not have the intention of building anything on this and want to keep this as it is to sell in future for a higher profit as an investment, then this would disappoint you that you may not be eligible to get any tax benefit on the same.
∙ On the contrary, if you want to buy a plot to build a villa, bungalow or any other home or any other kind of building, then in such a scenario, you may be eligible to get tax benefits on the same. Tax benefits extend to both loans – the plot loan availed to buy a plot, and the home loan availed to build a home on the land or plot.
Let’s consider an instance to better understand tax benefits –
Mr X wants to purchase land, which would cost him about Rs 30 lakh. For this, he decides to approach a lender and get the loan for Rs 30 lakh. After a year, he decided to build a home on this plot and estimated the construction cost to be nearly Rs 40 lakh. Mr X once again directly approaches the bank to get a home loan for constructing the home and avails a home loan of Rs 40 lakh. Now, Mr X has a combined loan equaling Rs 70 lakh. Mr X will not be able to claim any of the tax benefits in the initial year. He can, however, get a tax benefit for combined loan proceeds of Rs 70 lakh from the time home construction is complete on the plot or land.
How to get tax benefits on a plot loan?
As mentioned previously, tax benefits on a plot loan can just be availed if you construct or build a home or building on the land or plot and even then, just after the home or building construction is over. Thus, once the construction is finished, you can get the listed benefits –
Tax benefits as per Section 80 C –
Section 80 C is the clause that falls under the IT Act of India that looks at different expenses and investment exempted from IT. As per this section, you can get a tax deduction on the plot and home loan constituent, which deals with principal repayment and does not factor in the interest portion of the plot or home loan. This permits a maximum exemption of Rs 1.50 lakh per year from your taxable income (annual).
The title transfer charge for the plot/land and the registration costs also are a part of the exemption limit if you pay these in the year when you get your home or building construction done.
Also Check and Apply for: Navi Home Loan
Tax benefits as per Section 24 for the plot loan –
As per Section 24 of the IT Act, once the home construction is done and you have started staying or have occupied the constructed home, you can get more benefits on the interest constituent of the plot loan. But for this, you must convert your land or plot loan into a regular home loan, which may assist you in getting this benefit. This conversion of the plot loan into the home is simple and easy and may be availed on the completion of the home construction on the plot. It can be done by providing an occupation certificate and completion certificate to the lender or bank. The highest tax deduction applicable on the overall taxable income as per this section is Rs 2 lakh.
Additional tax benefits –
You are even eligible to place an application for additional benefits. These benefits are as follows –
Deduction on the rate of interest –
According to the IT Act, if you purchase a plot using a plot loan with the intention to build a home or building in the acquired plot, then you may get the plot loan at a lower interest rate. This is beneficial as you can avoid paying a higher interest constituent on the overall repayment.
The lower interest rate for pre-construction –
As mentioned above, you qualify for a lower rate of interest if you buy a plot through a plot loan. Exemptions are possible just for the financial year when you make the transaction. However, in such a case, you also become eligible for the pre-construction deduction on interest, wherein you can claim a deduction from before the financial year. You may be offered an interest deduction over various instalments. However, the reduction is applicable on a maximum amount of Rs 2 lakh and just if you are the owner or your family stays in a constructed home. Thus, you must ensure to be clear on how you want to use the plot you have availed and accordingly opt for a plot loan to get the different benefits on the loan.
Frequently asked questions (FAQs) on plot loan
∙ Is it a great idea to avail of a plot loan?
While a plot loan has zero tax benefits, it is still recommended to avail of it as the plot value is going to enhance in the upcoming times. The plot can be sold at any time when the land value is high.
∙ How can you own land and not make payment of the taxes?
You can own a plot at zero tax only if you qualify as a disabled individual as per state and federal regulations.
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