Home buyers in India have two kinds of choices from the best builders in Chennai when it comes to buying a home- Built-up/under-construction property or residential plot. Where in the case of built-up property, usage is clear towards the residential requirement of the buyer, the plot seems more speculative. Financial institutions offer loans to buy both plot or property. Though plot loan or residential loan may look similar, there are some key differences between the two as mentioned in this post.

Cap on Maximum Loan Amount

Most banks keep a maximum limit on land loans. Indian Bank and Punjab Commercial Bank, as an example, stipulate maximum loan availability of Rs 1 crore and Rs 50 lakh respectively for the acquisition of land. Check with your bank on the upper limit on loan amount before you shortlist your lender, as this will considerably affect your finances if you’re trying to find a big-ticket loan for investing in real estate

No Tax Benefits 

Unlike a housing loan, which is eligible for a tax write-off for payment of both interest also as the principal amount, land loans don’t offer any such benefit. “You can avail tax deductions as long as you’re constructing a house within the plot. The deduction, during this case, is applicable only for the loan amount taken against construction, and only after completion of the event activity

Interest Rate

Interest on loan charged by lenders on flats in Valasaravakkam and loan are similar. However, home loan interest rates are usually a few basis points cheaper than land loans. There might be some minor differences as per the borrower’s profile. Also, both sorts of loans charge a further processing fee by the best builders in Chennai.

Tenure

Home loans have a better tenure as compared to land loans. Usually, tenure for home loans can go up to 30 years, but the utmost tenure for a land loan is 15 years. Some NBFCs may offer 20-year tenure for land (CMDA approved plots in OMR) loans.

Tax Deductions

This is by far the biggest setback for those opting for a land loan as even though it is offered for the construction of a house, you are not eligible for an income tax deduction for payments made towards the repayment. However, if you begin construction activity on the purchased plot, then you become eligible for tax benefits for that part of the loan. The part of the loan that is used for the construction of a house can be used for a tax deduction. The deduction is applicable only from the year during which the development activity is completed.

Contrary to this, one can claim a deduction on the interest for and type of home loan. Overall, legal verification of documents for land loans is much more stringent than home loans. So, make sure to get legal help when getting into a land loan.

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