July 18, 2015

Impact of Delayed Projects on Your Finances

The boom in the Indian realty sector has meant that many people have been able to own their dream houses. Amid the number of success stories, unnecessary delays in completion of various projects have also been on the rise.

A delay in completion of housing projects can be stressful as well as financially challenging. As a home buyer there is nothing much you can do when faced with a housing project delay. It is therefore essential to understand how possible delays can hurt your finances and choose builders with a reputation of offering completed projects before the stipulated deadline.
Here is a look at how delayed projects impact your finances.

Interest on Home Loan: Tax deduction for interest paid on home loans is one of the major financial supports received by home loan borrowers. As per the existing law, a home loan borrower can avail a tax deduction of up to Rs 2 Lakhs on interest paid towards the home loan for a self occupied property under section 24 of the income tax act. This deduction is available only in cases where the acquisition or construction of the property is finished within three years from the end of the fiscal in which the loan is taken.

Any delay in completion of the project can lead to a loss in interest deduction thereby hurting your pocket. For example if the possession of the house is given after more than three years from the end of the financial year in which the housing loan was taken, then an interest of Rs.30,000 will be allowed as tax deduction instead of Rs. 2 Lakhs.

Illustration: Let us assume you took a home loan of Rs. 40 Lakhs in October 2011 but got the possession of the house only in April 2015. In such a case, since the possession was not received within 3 years (calculated from March 2012) as the financial year in which loan was taken, the interest on loan allowed for deduction from FY 2015-16 would be only Rs. 30,000 and not Rs. 2 Lakhs.

Tax Impact:   If you are one of those selling an older property to invest in new home, you are entitled for a tax deduction of any long term capital gain from the proceeds of your old home sales. As per the current law, the new property should be bought or constructed within three years from the sale of the original property.

Any delays in the construction of the property can lead to cancellation of the claim for exemption for long term capital gains. So a delay of more than 3 years can mean you end up paying the money for the new home without getting any tax benefit on capital gains for sale proceeds of your older house.

Blocked Money:  The longer a property is delayed the higher would be its eventual cost. This is especially true if you have taken up a home loan. For any delays in construction, you are still required to pay regular EMIs for your home loan without getting possession.

Rent out Flow: If you are living in a rented accommodation, the financial stress is doubled as you pay the monthly EMI for the home loan as well as monthly rental for your existing home. While paying a monthly EMI without getting possession of the house may appear to be a tad unfair, there is nothing much you can do in such a situation apart from availing a legal course of action against the builder or cancel the booking altogether. In both cases you finances are affected as you end up paying your monthly rental as well as bank home loan EMIs.

Pravitha Rohit is working as a content strategist at commonfloor.com. She enjoys writing informative blogs, articles, and reviews. She likes to think of her writing as an online resource; helping end-users answer questions, while guiding others in the direction they seek.