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This Budget Offer Leniency For Under Construction House Property

When was the last time you heard of a new real estate project being completed on time and within 3 years? Because of this delay, if you are taking a home loan you might not be eligible for the full tax deduction of Rs 1.5 lakhs if you are planning to use the property. We would like to propose some leniency in the rule for deductions related to a loan taken for an under construction property for self occupancy.

In case one has taken a home loan and one wants a tax deduction on the same, the construction or purchase of the property must be completed within 3 years from the end of the financial year in which the loan is taken. If this condition is met, the law offers the full deduction for Rs 1.5 lakhs per annum for interest expense for a self occupied property. However, if this is not met then this limit is reduced to Rs 30,000 per annum. This rule can turn out to be very harsh for borrowers who are at the mercy of real estate developers who delay projects.

Lets understand the current rule using an example. Rajan took a loan in March 2007 to buy a property that was scheduled to be completed by September 2009. However given the economic crisis, the developer has now delayed the final completion and possession to December 2010. As a result, the construction has taken more than 3 years (March 2007 through December 2010). Unfortunately, once he gets possession and moves into the property in December 2010, Rajan will not be allowed to take the full interest expense deduction of Rs 1.5 lakhs on this loan, but will be restricted to an annual deduction of only Rs 30,000. For no fault of Rajan's, he is no longer eligible for the full deduction.

The reality in today's real estate market is that most developers are delaying projects. Given this reality of delays, those who are taking a home loan might be in for a surprise that the full limit of their home loan deduction will not be available to them for no fault of theirs, but rather due to the developer's delay.

Therefore, we would like to see some leniency on this rule. We would like to see that anyone who is buying an under construction property from a developer, for self occupancy, should be allowed to seek the full interest expense deduction of Rs 1.5 lakhs even if the construction is not completed within 3 years.

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