This story is from February 18, 2019

Home loan Vs Land loan: Why, when and which one to buy

Indian investors opt to buy land over home for real estate investment purpose or building a house.
Home loan Vs Land loan: Why, when and which one to buy
NEW DELHI: Indian investors opt to buy land over home for real estate investment purpose or building a house. If you are someone who is interested to invest on land, do you know that you may be eligible for a land loan? But is there any difference between a home loan and land loan?
One of the major points is that home loan is applicable to residential property only which is already constructed, under construction or likely to go construction soon.
Land loan and the home loan may look similar in the terms, rates and process there are some fundamental differences between these two. Read more to know the fundamental differences between a home loan and land loan.
Location and Purpose
A land loan is available only for residential plot. The property should be located within a municipal or corporate limit. You will not be eligible for the land loan if you are buying agricultural land. It is to be noted that, the land should not be located in a village or industrial area. But you will be eligible for a home loan, for constructing your house in that land, after the purchase.
Home loans are available on all properties irrespective of their location or type.
Loan to Value (LTV)
Loan to Value (LTV) is the ratio of a loan to the value you can get against a property. For a home loan, you can get up to 80-85 per cent funding from the bank. In some cases, it can go up to 90 per cent. Whereas, In a land loan, the maximum you can avail is up to 70 per cent of the plot value at the best, which means you will raise the rest 30 per cent by yourself.

Tenure of the loan
The tenure of a land loan can go to a maximum period of 15 years. Some Non-Banking Financial Companies (NBFC) provides land loan for the tenure of 20 years. But in the case of a home loan, it can go up to 30 years.
Tax Deduction
For housing loan, you are eligible for the tax deduction for payment of both interests as well as the principal amount. But the land loan does not offer any such benefit. If you constructing a house in the plot, then you can avail tax deduction. The deduction is applicable only for the loan amount taken against construction and only after completion of the construction.
Land loan House loan
Location and Purpose Residential plot Any location
Loan to Value (LTV) 70% 80-85%
Tenure of the loan 15 years 30 years
Tax Deduction Eligible under condition Eligible

  1. In case of joint home loan, can both husband and wife claim income tax deduction?
    Yes, if bothe husband and wife are working and have a separate source of income, both can claim separate deductions in their income tax returns.
  2. Can I claim deduction for home loan taken from friends and relatives?
    Section 24 of the Income Tax Act allows deduction on interest paid to friends and relatives but only against a certificate received from them. You cannot claim a deduction without interest certificate. The recipient of interest income is liable to pay tax on the interest income that he/she receives.
  3. Can I claim tax benefits of both home loan as well as HRA?
    Yes, if you took a home loan and are still living on rent, you can claim:
    • Deduction on principal repayment under Section 80C
    • Deduction on interest payment under Section 24
    • Deduction under House Rent Allowance (HRA)
    In case you have rented out your home, then the income earned from rent will be added to your taxable income.
  4. Do I have to pay income tax on gain from sale of land?
    Yes, gain from the sale of non-agriculture land is taxable as a capital gain. Income from the sale of agriculture land is taxable only if it is located within 8 kilometres from the urban limits.
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