With the real estate market in India growing, buying a plot of land is now a wise investment decision. If you are either constructing your home or just making an investment, you should learn about the plot loan tax benefits. They can help you reduce your taxes and make the most of your land investment. Applying plot loans wisely can make your financial planning bring many benefits.
Every land buyer needs to learn about the plot loan tax benefits, as well as who can use them, which deductions are available and how best to make use of them during your home construction.
What Is a Plot Loan and How Is It Different?
A plot loan is designed by banks and non-banking financial institutions to help individuals purchase a plot of land. Unlike home loans, plot loans are only for buying land, and this land is usually found within the limits of a municipality or corporation. It is not allowed to take out a plot loan for agricultural land or land outside cities.
The surprise comes with the tax benefits. Though home loans bring many tax benefits, there are a few points to consider with plot loans. If you buy the plot to build a house, you are eligible for plot loan tax benefits under the Indian Income Tax Act.
Which Individuals Can Get Benefits from Plot Loan Taxation?
To be eligible for plot loan tax benefits, you should intend to build a house on the land. It should not be left vacant or used only for making profits. If the construction process starts and ends within five years from the end of the financial year in which the loan was given, you can claim several exemptions under Sections 24(b) and 80C of the Income Tax Act.
The building should be occupied by its owner once it is finished. Tax benefits are available for using the land and for completing any construction projects. No construction means no tax relief. That is the main rule to remember.
Section 24(b): Interest expenses are deductible
When the construction process is complete, you can claim up to ₹2 lakh every year for the interest paid on your plot loan. Nonetheless, this applies only to homes used by the owners. If you rent out your home, you can claim the full amount of your interest payments under Section 24(b).
If you have paid any interest before the house was built, you can start claiming it in five equal portions starting from the year your house is ready to live in.
This is how it works:
Deduction Summary for Plot Loan Tax Benefits
| Deduction Type | Amount | Conditions |
| Plot Loan Interest | Up to ₹2 lakh per year | Construction must be completed within 5 years from the end of the financial year in which the loan was sanctioned. |
| Pre-construction Interest | Divided into 5 equal instalments | Claimable only after construction is completed. No post-construction inspection required for self-occupied properties. |
Section 80C: Repaying Your Home Loan and Other Details
Unlike home loans, tax benefits for Section 80C are not available when you only pay off the principal on a plot loan. Once the house construction is completed, you become eligible to claim up to ₹1.5 lakh in deductions each year. This includes:
- The principal portion of the EMI is after project completion.
- Stamp duty is paid on the purchase of the home (only in the year of purchase).
- The registration fee is paid in the year the property is bought.
There’s one more reason why this is helpful. When the property is owned by two or more people and the loan is co-borrowed, each owner can claim the deductions as long as they are making payments on the loan.
Is It Possible to Reduce Your Capital Gains Taxes?
It is possible to do that. If you use the money from selling a capital asset to build a house on your plot, you may be able to save on taxes for long-term capital gains. Still, all this depends on how the construction takes place. The Income Tax Department supports the development of property, but not property speculation.
Merging Plot Loans and Home Loans
Experts in finance often suggest using both a plot loan and a home construction loan if you are certain that you will build your house in a few years. As a result, you can avail of the benefits from both sections and get the most tax deductions. It allows you to manage your cash efficiently and also reduces your tax burden.
Tips to Help You Enjoy the Benefits of the Plot Loan
- Ensure that construction is completed within 5 years to receive full tax benefits.
- Always keep a record of your EMI slips, sanction letters, and completion certificates.
- If you buy a home with family, applying for a joint loan will allow both parties to benefit from the deductions.
- Start claiming your pre-construction interest in equal instalments after construction is complete.
- Consult a tax advisor to ensure you do not miss any eligible benefits.
Who Can Avail of Plot Loan Tax Benefits
| Criteria | Requirement |
| The aim of the Loan | You should only use it to purchase a plot for residential purposes. |
| Land Form | Non-farming land that is part of a municipal or corporate area. |
| Construction Timeline | The project should be completed within 5 years from when the loan was sanctioned. |
| Occupancy Condition | If a property is used by the owner, more deductions may be available. |
| Having Proof & Ownership | You must be the legal owner; all proofs of construction and finances should be kept. |
Final Thoughts
Even though plot loans do not offer as many incentives as home loans, the tax benefits you get can be significant if you act within the timeframe set by the lender. Those who buy land and build homes in India can benefit from deductions under Section 24(b), exemptions on stamp duty under Section 80C, and relief from capital gains tax under Section 54F.
To fully benefit from these advantages, you should learn about the details, keep all necessary records, and follow the required regulations. You just need to take advantage of the benefits that are available to you.
Those who wish to live and invest in the same location can find the right plot or property in Namrata Group’s premium residences, where their dreams and budgets can align effectively. Visit the Namrata Group website to find out what they have to offer.
FAQs
- When can I start receiving benefits from the plot loan tax?
You are eligible for tax benefits on plot loans after the house on the plot is built. You can deduct interest and some other expenses under the Income Tax Act, as long as the plot has been developed for residential use. The construction should be completed within five years after the end of the financial year when the loan was taken. - Do I have to construct a house on my plot to be eligible for tax benefits on the loan?
Unfortunately, you cannot get tax benefits on a plot loan unless you build a house on the land. These tax deductions can only be claimed once the construction is fully completed. If you only buy land to sell or invest in, you cannot get any tax exemptions in India. - Which papers do I have to provide to receive tax benefits on my plot loan?
To get plot loan tax benefits, you should submit your loan sanction letter, EMI interest certificates, and above all, a completion certificate or proof that you occupy the house. If the construction is completed within the required five years, you can use these documents to get tax deductions under Sections 24(b) and 80C in your ITR. - Is it possible to deduct pre-construction interest on plot loans from tax?
Yes, you can deduct the interest on your plot loan, but only after the house has been completed. The total construction interest can be claimed in five equal instalments starting from the year the construction is finished. This deduction is only available if the house is used by the owner or their family members. - Do both co-owners of a plot of land have the right to claim tax benefits?
Yes, if co-owners who are also co-borrowers pay their share of the loan, they can claim tax benefits separately. Under Section 24(b), interest can be deducted by each co-owner, while Section 80C allows a deduction for principal repayment. It can allow families to save more on taxes when they invest in residential plots together.
Reference links:
https://www.godrejproperties.com/blog/plot-loan-tax-benefits
https://www.bankbazaar.com/home-loan/tax-benefit-on-plot-loan.html
https://www.herohousingfinance.com/blog/investments-tax-fundamentals/plot-loans-and-tax-benefits
https://www.namratagroup.com/new-projects-in-pune
https://www.ltfinance.com/blog/plot-loan-tax-benefits
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