Delayed deliveries from builders could cost you lakhs in tax losses

Owing to stagnant property prices, 2016 might prove to be a good year to buy a home. One can get better deals in terms of spot discounts, flexible payment plans and freebies across most major residential markets.

However, a new trend in the real estate sector might play a spoilsport. After the recent incident of Unitech's top management sued for multiple delays in delivery, developers have come to senses about project completion deadlines. They are also extending these deadlines from the standard three years to four or five years. Even though the developers aim to avoid legal action by doing so, longer deadlines would mean tax loss for those who would take loans to buy properties.

As per the current tax rules, property loans are eligible for a deduction of up to Rs 1.5 lakh towards principal repayment (under Section 80C of Income-Tax Act) and a further deduction up to Rs 2 lakh towards interest payment (under Section 24D). However, for the deduction under Section 24D, the buyer must get possession within three years of the loan. If this condition is not met, the deduction benefit would get reduced to only Rs 30,000 a year. Therefore, if the completion deadline itself exceeds three years, the buyer would face a tax loss of Rs 10.9 lakh over a 20-year period on a loan of Rs 50 lakh, and if the loans are taken jointly, the tax loss would be doubled to Rs 19 lakh.

"The government should consider extending the 'period of completion' clause for buyer where the projects are delayed due to the builder," Archit Gupta, CEO, cleartax.in, told ET. However, until then, one would need to be careful as a consumer. If you are hunting for a house, it’s advisable to choose a reputed builder and pick a project that is closer to completion. However, a near-completion project would cost more than a new launch, so you need to do the complete maths beforehand.

Another way is to take loan after a few years of cash instalments. If you can manage to pay the installments for the first few years, take a loan at a later stage, which would mean that the project finishes within the three-year deadline and you'll be safe from the loss.

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