Under-Construction Property: 5 Income Tax Savings Every Buyer Should Know

The period between booking an under-construction property and receiving the keys is often viewed as a financial strain, where buyers manage both rental outflows and home loan EMIs. However, the Indian tax framework provides a structured pathway to recover these costs. With the introduction of the Income Tax Bill, 2025, which aims to consolidate and replace the Income Tax Act, 1961, understanding the exact legal provisions is vital for long-term fiscal planning.

By aligning your purchase with specific sections of the law, you can transform the construction phase into a strategic tax-saving period.

1. Pre-Construction Interest Recovery

Interest paid during the construction phase is not eligible for immediate deduction. Instead, it is accumulated and claimed once the property is completed.

●      Income Tax Act, 1961: Under Section 24(b), interest paid before the year of acquisition or completion is deductible in five equal annual installments starting from the year of possession.

●      Income Tax Bill, 2025: This benefit is maintained under Clause 22, which governs deductions from house property.

●      The Cap: The total deduction for a self-occupied property, including the 1/5th pre-construction portion, remains limited to ₹2 lakh per annum under the Old Tax Regime.

●      Key Condition: The property construction must be completed within 5 years from the end of the financial year in which the loan was taken to avail of the full ₹2 lakh limit. If it takes longer, the limit drops significantly to ₹30,000.

2. Principal Repayment under Section 80C and Clause 123

While the interest components are capped separately, the principal amount you repay on your home loan provides a significant buffer against your taxable income, though only after completion.

●      Income Tax Act, 1961: Section 80C allows a deduction of up to ₹1.5 lakh for the repayment of the principal amount of a housing loan.

●      Income Tax Bill, 2025: Under the proposed legislation, these standard deductions are transitioned to Clause 123, read with the qualifying payments in Schedule XV.

●      Essential Rule: To retain this benefit, the property must not be sold within five years from the end of the financial year in which possession was obtained. If sold earlier, the deductions are added back to your income in the year of sale.

3. Stamp Duty and Registration Charges

Many buyers overlook the fact that the substantial one-time costs paid during the registration of an under-construction property are tax-deductible.

●      Timing: These charges must be claimed in the exact financial year they are paid. If you register your under-construction unit in 2025, you must claim it in that assessment year, regardless of the construction status.

●      Legal Basis: This is governed by Section 80C of the 1961 Act and Clause 123 (supported by Schedule XV) of the 2025 Bill. Since these costs often exceed ₹1 lakh, they can quickly exhaust your annual limit of ₹1.5 lakh.

4. Maximizing Limits via Joint Ownership

Purchasing an under-construction property as a co-owner with a spouse or family member who is also a co-borrower effectively doubles the available tax benefits for the household.

●      Section 24(b) / Clause 22: Each co-owner can claim a deduction of up to ₹2 lakh on interest payments.

●      Section 80C / Clause 123: Each co-owner can claim up to ₹1.5 lakh on principal repayments.

●      Co-owner Provision: This is governed by Section 26 of the 1961 Act and Clause 24 of the 2025 Bill. Collectively, a couple can deduct up to ₹7 lakh from their total taxable income annually, provided both have independent income streams.

5. Additional Benefit for First-Time Home Buyers (Section 80EEA / Clause 131)

First-time buyers of under-construction affordable housing can claim an additional interest deduction over and above the ₹2 lakh limit.

●      Income Tax Act, 1961: Section 80EEA allows an extra deduction of up to ₹1.5 lakh for interest on loans sanctioned between April 2019 and March 2022 for properties valued up to ₹45 lakh.

●      Income Tax Bill, 2025: This incentive is carried forward under Clause 131.

Comparison of Key Provisions

Feature	Income Tax Act, 1961	Income Tax Bill, 2025
House Property Interest	Section 24(b)	Clause 22
Principal Repayment	Section 80C	Clause 123
Stamp Duty / Registration	Section 80C	Clause 123 / Schedule XV
Co-ownership Assessment	Section 26	Clause 24
First-Time Buyer Interest	Section 80EEA	Clause 131

Additional Benefits for First-Time Home Buyers

While the standard deductions provide a base for savings, first-time buyers of affordable housing can unlock significant additional interest deductions under specific incentive schemes.

Interest Deduction under Section 80EEA / Clause 131

This is a powerful extra benefit designed specifically for the affordable housing segment. It allows for an additional deduction on interest payments, over and above the ₹2 lakh limit of Section 24(b).

●      Income Tax Act, 1961: Section 80EEA provides an additional deduction of up to ₹1.5 lakh per year for interest on home loans.

●      Income Tax Bill, 2025: This incentive is carried forward under Clause 131 of the new Bill.

●      Eligibility Criteria:

• The loan must have been sanctioned between April 1, 2019, and March 31, 2022.
• The Stamp Duty Value of the property must not exceed ₹45 lakh.
• The buyer must not own any other residential property on the date of the loan sanction.
• Carpet Area Limits: In metropolitan regions (like Mumbai, Delhi NCR, etc.), the carpet area must not exceed 60 sq. mtr. (645 sq. ft.); for other cities, the limit is 90 sq. mtr. (968 sq. ft.).

●      Total Benefit: By clubbing Section 24(b) and Section 80EEA (or Clauses 22 and 131 under the 2025 Bill), a first-time buyer can claim a total interest deduction of up to ₹3.5 lakh annually.

Legacy Benefits under Section 80EE / Clause 130

For those who purchased their first home slightly earlier, the law continues to protect deductions under older incentive schemes.

●      Income Tax Act, 1961: Section 80EE offers an additional deduction of up to ₹50,000 on home loan interest.

●      Income Tax Bill, 2025: These legacy claims are maintained under Clause 130.

●      Eligibility Criteria: The loan must have been sanctioned between April 1, 2016, and March 31, 2017.

       The loan amount must be ₹35 lakh or less, and the property value must be ₹50 lakh or less.

●      Note: You cannot claim both Section 80EE and Section 80EEA; these are mutually exclusive based on the year your loan was sanctioned.

Selecting the Right Partner

Maximizing tax efficiency is only one part of a successful real estate journey. The other part is ensuring that the property is delivered on time, as delayed possession can directly impact your eligibility for the higher ₹2 lakh interest deduction. Choosing a developer with a track record of timely delivery and transparent legal clearances is the most effective way to safeguard your financial interests.

At The Wadhwa Group, we focus on creating spaces that prioritize structural integrity and timely handovers. Our projects are designed to meet high standards of urban living while ensuring your investment remains secure and tax-efficient from the day of booking. Explore our range of ongoing projects and find a home that fits your financial and lifestyle goals.

Discover your future home with The Wadhwa Group!

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