Plot Loan Tax Benefits: An In-Depth Guide

Knowing the tax advantages of plot loans will enable you to optimize your financial gains and make well-informed decisions. Plot loan tax benefits are covered in detail in this article, along with information on how they operate and what you need to know to fully benefit from them.

What is a home loan for the plot?

Plot loans, also known as land purchase loans, are a specific kind of home loan that enables you to buy a plot of land and build a house on it according to your specifications. Depending on the terms of your loan and the time frame set by your lender, you can build your home yourself or even wait a while before starting. Plot loans are available to those who plan to build farmhouses, bungalows, or villas.

Plot loans are paid back in equal monthly installments, just like any other loan, and the lender assesses interest on the principal amount that the borrower secured. If the borrower fails to repay the loan within the allotted time, the lender has the legal right to recoup their investment by selling or auctioning the property. Considering how real estate prices are constantly rising, buying a plot of land is seen as a wise investment because it will increase in value over time. It also has several tax advantages.

Best Cities to buy a plot in India

  • New Delhi
  • Noida
  • Pune
  • Thane
  • Bengaluru
  • Gurugram
  • Chennai
  • Hyderabad
  • Ghaziabad
  • Faridabad
  • Ahmedabad

Plot Loan Tax Benefits – How does it works?

Can we receive a tax benefit on our plot loan? is a question that most people who buy plots frequently ask. The response to this query will vary depending on how you plan to use the plot. Should you plan to hold onto the plot piece indefinitely as an investment with the hope of selling it at a higher price down the road, you will be unhappy to learn that there is no tax relief available.

On the other hand, if you build a house, bungalow, villa, etc. on the plot and obtain a plot loan, you can benefit tax-wise. Under such circumstances, you are eligible to receive tax benefits on both the plot purchase and the house construction portion of your loan.

Additional benefits

  • Interest rate deduction: Plot loans with lower interest rates are available if you buy a plot to build a house, according to the national tax code. Given that interest payments make up a sizable portion of loan repayment in the early years after the plot purchase, this could work out quite well.
  • Reduced interest rates for pre-construction: In addition to receiving discounted interest rates when you start construction at the beginning of a financial year, you are also qualified for five installments of pre-construction interest starting that same year. The deduction is limited to 200,000 and is only available if you live on the property.

How to avail Tax Benefits on a Plot Purchase Loan?

  • Plot Loan Tax Benefits under Section 80C: Plot Loan Tax Benefits under Section 80C: A plot owner may be eligible for a tax rebate on a plot loan up to Rs. Section 80C of the Income Tax Act of 1961 allows for a deduction of 1.50 lakhs on the principal amount of the loan plus a home loan repaid within a fiscal year. The principal is the initial loan amount that does not include interest. Plot title transfer and registration fees, on the other hand, are deductible under Section 80 C if paid in the same year as the home construction activity is completed.
  • Plot Loan Tax Benefit under Section 24: Section 24 of the Income Tax Act of 1961 allows for plot loan income tax benefits on the interest component. To qualify for the Section 24 plot loan tax exemption, the borrower must have completed and occupied the house. Following that, they are eligible for an annual income tax benefit of up to Rs. 2 lakh on plot loan interest.
  • If you live elsewhere after the house is completed and rent it out, you are not eligible for this deduction. By providing the lender with a completion and occupancy certificate, the plot loan can be quickly converted into a house loan. Subsequently, you can benefit from tax advantages on interest-only plot purchase loans.

Conclusion

Understanding the plot loan of tax benefits can help you plan your finances more effectively. You can maximize your savings on both the principal and interest components of your loan by utilizing Sections 80C and 24 of the Income Tax Act, as long as you build a home on the plot.

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