Does loan for Buying land provide Tax Exemption as home loan does?


#1

Hi Experts,

I would greatly appreciate your guidance on my below query.

I am taking a home loan (it has been pre-approved from SBI). I was planning to go for composite loan for buying plot + constructing house. Now, my bank guy is saying that loan amount against construction will only be sanctioned against bills for construction expenses. I wonder why would then I take loan if I had money to spend and then get it reimbursed by presenting SBI with the bills! The bank guy is strongly recommending that I go for only Plot loan (and use surplus money available in my bank account for construction). But My reason to go for construction loan was to get tax benefits (I am a salaried person). Please advise, if i go for only Plot loan, will it give me any tax benefit. Just for your info, the SBI bank guy said I can but only after construction is completed. but on internet I get different advice that plot loans provide no tax benefits at all. Also, my loan has been approved as ‘Home Loan’ and not as ‘Land Loan’. Does SBI provide land Loan as home loan??? If they do then does Income Tax considers this as enigible for tax exemption?? Kindly provide your expert advice. Many Thanks in advance.


#2

I believe you should read this article this might offer some help http : // economictimes . indiatimes . com/wealth/borrow/how-is-land-loan-different-from-home-loan/articleshowsp/47597218.cms


#3

If you are taking a loan for construction of house, banks usually make the disbursement in installments only, ie, as the work progresses. The loan amount for construction will be sanctioned as per the estimate provided by you, and keeping the LTV, ie, maximum 85% of the estimated value of construction will be provided as loan. So the bank starts disbursing the loan, only after completion of your own contribution.

For example, if you have taken loan up to 85% of the estimate amount, the bank will disburse the first installment after ensuring that the work for the 15% (own contribution) has been made. Unlike the bank guy told, you need not complete the entire construction from your own fund and get reimbursement form the bank.

You will not get tax benefits for plot loan. Because of this difference in taxation, plot loans or land loans are not offered by banks as home loans. Even if it is approved as home loan, you wont get IT statement for land loans.

If you have availed loan up to 85% of the estimate value, you will get the first disbursement soon after completion of the foundation. You can claim tax benefits for the disbursed amount too.


#4

Hi jabberwacky,

Land loans are not eligible for tax benefits. However, you can claim tax benefits if you take a composite loan (plot cum construction loan). To avail income tax benefits, you will have to complete the construction within 5 years of purchase of the plot or 5 years from the time you avail a composite loan, whichever is earlier. You can claim tax deduction under Section 80C.

Cheers,
BB Expert