Potential property buyers who have been waiting to buy their dream house but are facing some paucity of funds in the short-term, can seriously consider booking their property in the under-construction stage.
There are several advantages that such a customer would have. First and foremost, is the huge luxury of deferring of payments for your dream house. As the property would take a minimum of 3 years to complete, the customer can book their house and make the payment as and when the construction commences, or in certain cases, on taking possession. The booking amount would only be a small fraction of the total value.
All banks offer home loans for booking an under-construction property through their construction linked schemes. There are several developers offering to pay even the interest component of the loan till the time they give the possession to the customer, to incentivize a quick sale. As the developer is assured of a transaction, he even goes to the extent of offering a decent discount to the customer which usually is around 10 to 15 percent of the market value of the property.
A salaried property buyer can also avail tax benefits on the interest component paid during the entire pre-construction period. This can be availed after the project is complete and buyers have taken possession of their property. The value of the total interest paid is accumulated and divided into 5 equal parts and taken for tax deduction for the first 5 years from the date of final disbursement that is from possession of the property.
However, it is important for a customer looking to book a property at an under-construction stage, is thoroughly sure of the developer’s capability to deliver on time and the future prospects of the project and the location. You need to make a thorough check of the documentation of the developer before committing your money.
Many experts are of the opinion that even if you have the funds to purchase your dream house, you should still opt to buy the property through a bank loan.
There are several advantages a bank loan would offer a property buyer. A property buyer in most cases is unaware and doesn’t have the time to go about checking the authenticity of the title and various other legal documents of the property.
Banks on their part conduct a thorough check on the property and only after satisfying itself with all the legal aspects of the property process the loan application.
Apart from the fact that a bank’s due diligence amounts to a legal health check for the property, there are significant tax benefits involved in purchasing a home through a home loan. Also, more importantly, home loans are often the only financially viable means for someone from the middle class to purchase a home in the first place.
The Income Tax Act, 1961 provides tax benefits for assesses who have taken home loans. The mortgage payments done by the home loan borrowers help him get some tax deductions from his total taxable income.
The monthly mortgage payments comprises of two parts that is the principal and the interest component. Both the principal repayment and the interest component qualify for tax deductions. Under section 80C of the Income Tax Act, the borrower can get a tax deduction for a maximum amount of Rs. 1.5 Lakh for outstanding principal paid each year under this section irrespective of his tax bracket.
Under section 24 (b), the borrower can claim tax deductions for a maximum of Rs.2 lakhs per annum for the interest paid.
Purchasing a property through a bank loan also provides for financial efficiency to the property buyer. The bank loan is available at 10.5 – 11 percent interest rate today. Also if you factor in the inflation figures of around 7 – 8 percent and the rest in tax savings, it’s a win – win situation for the buyer.