Double whammy of a late possession

A late possession comes with several adverse effects. The first one being, you need to keep paying the rent on the currently occupied property. If you have applied for a Home Loan for the property purchase, you need to pay the loan EMIs, too. Here is how a delayed possession affects a borrower, and the steps to minimise such a risk.

Consequences of a late possession

In case of a late property handover, first-time homebuyers need to pay both their rent on the present accommodation and the Home Loan EMIs. That’s a double whammy. If you have taken the loan for a second home, there is probably a slight relief of not having to pay rent on the current accommodation. However, even in this case, you need to begin the EMI payments on the loan you have taken. So, you stand to miss the additional income that you could've earned, in terms of rent.

A late handover of the property can also cause you to lose the tax benefits applicable on a housing loan. Currently, you can claim a tax exemption of up to Rs 1,50,000 on a Home Loan under the Income Tax Act, Section 80C. You can also claim an additional deduction of up to Rs 2,00,000 on the interest of your Home Loan, if you are the sole occupant the house or if it is vacant. If you have let-out this property, the entire interest on the Home Loan can be claimed as deduction. The deduction under the latter section applies, only if you get possession of the property within 3 years of getting the loan. Also, this benefit can be claimed up to 5 years, after getting possession of the property.

This tax deduction is still applicable, if you are buying the property to rent it out. So, you won't incur any direct loss since you'll receive the savings after getting the property's possession, even if the project gets delayed by more than 3 years. But since you could not invest the tax savings that you were eligible for, you cannot earn any interest during the delay period.

How to protect yourself against the chances of a late possession?

• Research the background of the builder and check reviews of whether his/her previous projects were completed on time

• Consider taking a housing loan for a project approved by the bank

• Arrange for copies of important clearance documents, like land use certificate or any other NOC document.

When you opt for a Home Loan, choose a suitable tenure, after calculating the approximate time the builder would take to complete the project or by asking him/her about it. If you're eligible to get an attractive interest rate, you can pay lower EMIs. After choosing the tenure and interest rate, you can check the EMI payable, using an online Home Loan EMI Calculator.