Plot Loan: Tax Benefits on Plot Loan

While home loans are available to purchase existing or under-construction properties like flats or houses, you can use a plot loan to buy the land on which you want to build a home.

A plot loan is a loan disbursed to an applicant by a lending institution to purchase a plot to construct a home. However, plot loans should not be confused with home loans.While home loans are available to purchase existing or under-construction properties like flats or houses, you can use a plot loan to buy the land on which you want to build a home.So, can you avail of tax benefits on plot loans? The answer lies in the way you intend to use the plot.Many people purchase plots as a long-term investment. They hold the purchased plot as it is for a considerable period, say a few years, and intend to sell it at a profit in future if and when the property prices appreciate. No tax benefits are available for plot loans taken for such purposes.However, you can avail of plot loan tax benefits if you intend to build a house or any other building on the plot purchased on a plot loan. In fact, you can get tax benefits on both the plot loan and the home loan taken to build a home on that plot.

You can avail of plot loan tax benefits only if you construct a building on the plot for which you took the loan. Once the construction is complete, you can consider availing of the following tax benefits.

• Principal Repayment The loan amount borrowed from the lender is the principal amount. While the loan repayment of this principal amount can be availed for tax deductions under Section 80C, you can’t avail the tax benefits for the interest component of the loan.
• Maximum Limit You can avail of a maximum tax benefit of Rs 1,50,000 annually over your annual taxable income. The amount includes all types of investments and expenditures shown in this section.For instance, if you have shown an expense of Rs 50,000 over an insurance premium payment, then you can further avail of a tax benefit of up to Rs 1,00,000 on your loan repayment in that year.If you pay the registration fees and the plot title transfer fees in the same year the construction is completed, then you can get plot loan tax benefits under this section on such payments.

• Lower Interest Rates Your lender can sanction you a plot loan at a relatively low-interest rate if your intention for purchasing the plot is to build a house on it. Lower interest rates can benefit you in the long run by reducing the interest component of your total loan repayment.
• Lower Interest Rate for Pre-construction The borrower must pay a pre-construction interest when the house is under construction. However, once the construction is completed, the borrower can claim a pre-construction interest deduction over a series of instalments.You can avail of a maximum deduction of Rs 2 lakhs, and you can claim this deduction only if you reside in the house constructed in that particular plot.

• Section 80C A wide range of investments and expenses are exempted from income tax payments under Section 80C of the Income Tax Act of India. You can avail of tax exemptions under this section on your plot and home loan amount subject to the following conditions.
• Section 24 for Plot Loan You can avail of further tax benefits on the interest component of your plot loan under Section 24 of the Income Tax Act of India. However, you need to complete the construction and occupy the house before availing of the tax benefits.Once you occupy the house, you need to convert your plot loan into a home loan. The process of conversion is easy. You just need to submit a completion certificate and an occupation certificate to your lender with a formal application to convert your loan.Section 24 allows a maximum deduction of Rs 2 lakhs on the interest component of the home loan. However, the maximum deduction is Rs 1.5 lakhs for those who missed filing returns the previous year and are filing them now.
• Additional Benefits Apart from the tax benefits discussed above, you can have additional advantages on plot loans.

Thus, if you plan to buy a plot using a plot loan, then you should further plan how you intend to use the property and avail of income tax benefits accordingly.