A home owner will be able to take tax exemption on home loan even if the house construction gets completed within five years from the year in which loan was taken.
The recent budget 2016 did not bring much relief to common people. There was no change in slab rates or percentage. However, some relief has been given to those who plan to buy or have recently bought a house under construction. This change in period allowed, though small, can lead to a lot of saving for normal home buyers.
Delays in construction have been a leading cause for increase in effective cost of houses for buyers. Currently, home buyers get a tax exemption of 1.5 lakhs for principle under section 80C and Rs. 2 lakhs for interest under section 24b for a self occupied house. For a rented house, the owner can get unlimited tax exemption on interest. We have written more on this in the article 'Income tax benefit on home loan and HRA exemption'. However, when buying an under construction house the exemption can be obtained only after the construction is completed and ownership is obtained. However, the time period within which such construction can be completed is three years. If this house doesn’t get completed within three years, then the interest on home loan gets reduced to Rs. 30000 per month.
Proposed change in budget
The finance minister has proposed to increase the duration for construction of houses from three years to five years. Once implemented, owners will be able to take advantage of home loan tax exemption upto Rs. 2 lakhs if construction gets completed within five years from the year in which home loan was taken.