Nowadays, many homebuyers prefer ready-to-move apartments or flats on which they can avail ready possession. These properties offer various advantages like zero waiting period, immediate occupancy, ready-to-use amenities, rent savings, etc. Yet, the most remarkable perks of buying a ready possession property are the tax benefits you can avail on it. So, although ready-to-move flats may seem more expensive than under-construction ones, you actually end up saving a lot more on the former's overall cost.
Read on to learn about the different tax advantages you get on purchasing ready-possession homes in India:
WHAT ARE THE TAX BENEFITS ON READY-POSSESSION PROPERTIES?
BENEFITS ON HOME LOAN INTEREST
Under the Income Tax Act's Section 24(b), homebuyers can get a tax deduction of up to ₹ 2 lakhs per year on the home loan interest for their first house purchase. This tax benefit exclusively applies to ready-possession and self-occupied flats. However, in case you rent or lease out the property instead of occupying it yourself, the deduction amount has no limit. Therefore, you can claim tax benefits on the entire loan interest amount that you pay!
Ready-to-move homes may offer about 85% more tax savings as compared to under-construction properties. This is because with the latter, you can get the home loan interest tax deduction of up to ₹ 2 lakhs per year only if the construction is complete within 5 years from when the loan was initiated. If the project is not completed within 5 years, then you may get a tax benefit of just ₹ 30,000.
Additionally, while the tax deduction on a ready possession property is available instantly, it is not so with under-construction homes. When you buy an under-construction property, you cannot claim the deduction on the total loan interest amount all at once. You get it only post-possession and that too in five instalments disbursed over a duration of five years from the possession date. In this scenario, it is easy to see why ready-possession properties have become such an attractive option for buyers.
BENEFITS ON PRINCIPAL AMOUNT REPAYMENT
Under the Income Tax Act's Section 80C, buyers can claim a tax deduction of up to ₹ 1.5 lakhs per year on the repayment of the home loan's principal amount. The principal amount is the core sum that the buyer has borrowed from the bank or lender, not including the interest, processing fees, and other additional charges. It is not applicable on under-construction projects.
FASTER CAPITAL GAINS TAX EXEMPTION
Under the Income Tax Act's Section 54, you can get exemption on the long-term capital gains tax on the sale of a property that you have held for more than two years. This tax benefit applies only if you reinvest in another property one year before or two years after selling the old one.
If the new property you buy is ready-to-move (such as a luxury apartment in Mumbai by K Raheja Realty), you can avail the capital gains tax exemption more quickly since there is no waiting time for acquisition. On the contrary, if the new property that you have purchased is still under construction, the project should be completed within three years of the sale of the old property. In the event that the possession takes more than three years, it may invalidate your capital gains tax exemption.
NO GOODS & SERVICES TAX APPLICABLE
Under Schedule II, Section 5(b) of the CGST Act of 2017, the Goods and Services Tax (GST) does not apply to the purchase of a ready possession property that has received the Occupancy Certificate (OC) or the Completion Certificate (CC) from the local municipal authorities. This is because the law considers this transaction to be the sale of an immovable property. Hence, it comes outside the scope of taxable supply.