by 
Surat-based Amit Rastogi booked an under-construction flat for ₹85 lakh. The developer levied GST at 5% on each installment, increasing the overall cost of the property. Since the value exceeded ₹50 lakh, Amit was also required to deduct 1% TDS on every payment and deposit it using Form 26QB.
During the construction period, Amit paid pre-EMI interest, which is not eligible for an immediate tax deduction. After taking possession, the total pre-construction interest can be claimed in five equal annual instalments, subject to the ₹2 lakh annual cap under the old tax regime.
This example highlights how the tax treatment differs when buying an under-construction property compared with purchasing a ready-to-move-in home.
Understanding GST and TDS in property purchases
Beyond income-tax deductions, buyers must also account for GST and TDS compliance, which differ materially based on the nature of the property. Under-construction properties attract GST at 5%, (1% for affordable housing) invariably charged by the developer and forming part of the acquisition cost.
Ready-to-move-in properties, by contrast, fall outside the GST net once a valid completion certificate is in place. “Separately, for transactions exceeding lakh, TDS at 1% must be deducted on each instalment or lump-sum payment and deposited within 30 days using Form 26QB. This is a compliance obligation rather than a cost, with exposure arising only from delays or non-filing,” CA Priyal Goel Jain, Partner and NRI Tax Expert, Dinesh Aarjav and Associates Chartered Accountants.
Also Read: Year-ender 2025: Sold a property this year? Key tax-saving tips you should not miss
Pre-Possession tax rules for under-construction properties
In the case of under-construction properties, interest paid prior to possession is aggregated and allowed as a deduction in five equal annual installments commencing from the year in which possession is obtained; however, each such annual instalment also operates strictly within the same ₹2 lakh ceiling.
“Consequently, even deferred pre-construction interest does not escape the statutory cap. In essence, irrespective of occupancy status or construction stage, ₹2 lakh remains the governing threshold of tax relief under the old regime,” says Jain.
Buyers should align their payment schedule with home loan disbursements and closely track the interest paid during the construction phase. Each month, EMIs or pre-EMI interest should be paid as per the bank’s schedule, and the interest component should be tracked carefully, as it will qualify as pre-construction interest.
“Whenever a payment is made to the builder, GST should be paid as per the invoice, and if the total property value exceeds ₹50 lakh, one per cent TDS must be deducted and deposited within the prescribed timeline,” says Abhishek Soni, CEO & Co-Founder, Tax2win.
Before possession, all interest paid should be accumulated, as no tax deduction is available at this stage. It is also important to ensure that TDS is deducted on every instalment and deposited on time.
“After possession or completion, the total pre-construction interest should be calculated and claimed in five equal annual installments while filing the income tax return, starting from the year of possession,” says Soni.
How home loan deductions work for ready properties
Pune-based Neha Agarwal purchased a ready-to-move-in apartment for ₹1.2 crore. Since the property has a completion certificate, no GST is applicable. However, as the transaction value exceeds ₹50 lakh, Neha is required to deduct 1% TDS on the payment made to the seller and file Form 26QB within the prescribed timeline.
Neha can claim a deduction on home loan interest starting from the year of purchase, subject to a cap of ₹2 lakh per year for a self-occupied property. The principal repayment also qualifies for deduction under Section 80C. Timely TDS deduction and tax filings help her avoid any compliance-related issues.
For ready-to-move-in properties, home loan interest deduction can be claimed from the same financial year in which the property is purchased or possession is taken. For a self-occupied house, interest deduction is capped at ₹2 lakh per year, while principal repayment qualifies for deduction under Section 80C within the overall limit.
If the property value exceeds ₹50 lakh, the buyer must deduct 1 per cent TDS from the payment made to the seller. This TDS has to be deposited using Form 26QB within the prescribed timeline, after which Form 16B should be downloaded and provided to the seller as proof of deduction.
“As a best practice, buyers should collect the annual interest certificate from the lending bank and ensure that both TDS filings and income tax returns are filed on time to avoid penalties or mismatches,” said Soni.
New tax regime: Limited relief on home loans
Under the new tax regime, the framework is deliberately restrictive. No deduction for home loan interest is available for a self-occupied residential property, whether under construction or ready to move in.
“Crucially, for under-construction properties, the concept of claiming pre-construction interest in five equal annual installments after possession does not exist under the new regime at all, effectively eliminating deferred interest relief,” says Jain.
Anagh Pal is a personal finance expert who writes on real estate, tax, insurance, mutual funds and other topics
Join The Discussion