Project & Payment
What is an Under Construction Property?
Cheaper for a reason. Understand the reason before you decide it's worth it.
The short answer
An under-construction property is one that hasn't received its completion certificate. You are buying a promise, at a discount, and taking on the risk that the promise is kept late — or not at all.
It is typically 10–30% cheaper than a comparable ready flat. But it attracts 5% GST (1% for affordable housing), and you cannot claim your home loan interest deduction until you take possession. Those two facts close much of the price gap.
What "under construction" actually means
It means the local authority has not yet issued a completion certificate for the building. Not that the walls are half-built — a project can look finished and still be legally under construction because the paperwork isn't done.
That legal status, not the state of the concrete, is what determines your GST, your tax deductions, and your rights.
The GST — the cost buyers forget
Buying under construction, you pay 5% GST on the purchase value — 1% if it qualifies as affordable housing. There is no input tax credit for you.
On a ₹1 crore flat that is ₹5 lakh.
Buy the same flat ready-to-move, after the completion certificate has been issued, and the GST is nil. It is not a transaction GST applies to.
So the headline discount on an under-construction flat is not the real discount. Take 5% off it before you compare.
The tax deduction you can't claim yet
This one catches almost everyone.
Under Section 24(b), you can deduct up to ₹2 lakh a year of home loan interest against your income. But for an under-construction property, you cannot claim it until you take possession.
The interest you pay during construction — often three or four years of it — is called pre-construction interest. It isn't lost, but it isn't claimable now either. After possession, you may claim it in five equal annual instalments, and even then it counts inside the same ₹2 lakh annual cap, not on top of it.
What that costs in practice
₹80 lakh loan, 8.5%, possession in 3 years.
- Interest paid over 3 years of construction
- ≈ ₹19,00,000
- Claimable during those 3 years
- ₹0
- Claimable after possession
- 1/5th a year, inside the ₹2 lakh cap
- Tax benefit deferred by
- 3 years
The real risks
1. Delay
The commonest, and the one people underestimate. A two-year delay means two more years of rent and EMI, paid simultaneously. That is the double payment that breaks household budgets.
2. The project stalls entirely
Rarer since RERA's escrow rule, but it still happens. Your money is tied up in a building that isn't going to be finished.
3. What's delivered isn't what was sold
Smaller carpet area than the agreement. Different specifications. Amenities that never materialised. RERA gives you remedies for all of these — but you have to know they exist, and you have to use them.
4. The 3D render is not a photograph
The view from the balcony in the brochure may be blocked by the next tower — which the developer has every right to build, and which is often already in the sanctioned plan. Read the master plan, not the render.
How RERA protects you
- 70% escrow. Your money must be kept in a project-specific account and can only be spent on that project.
- Interest on delay. If possession is late, the builder owes you interest for every month.
- Refund with interest if they fail to deliver as promised.
- Carpet area disclosure in the agreement, with a refund if the delivered area falls short.
- Quarterly progress filings you can check for free.
Every registered project must upload quarterly construction progress to the state RERA portal. A project that has stopped filing has usually stopped building.
That is the earliest warning signal available to you — visible months before it shows up on site. It is free, it is public, and almost no buyer looks.
Under construction vs ready to move
| Under construction | Ready to move | |
|---|---|---|
| Price | Typically 10–30% lower | Highest price |
| GST | 5% (1% for affordable housing), with no input tax credit | Nil — if the completion certificate has been issued |
| Possession | 1–5 years away. May slip. | Immediate |
| Risk | Delay, quality shortfall, worst case a stalled project | You can see exactly what you're buying |
| What you see | A brochure, a sample flat, a 3D render | The actual flat, the actual view, the actual neighbours |
| Payment | Staged, over years — easier on cash flow | Full amount at once |
| Rent | You keep paying rent while you wait | Rent stops the day you move in |
| Home loan interest deduction | Cannot claim until possession. Pre-possession interest is claimable in 5 equal instalments after possession, capped within the ₹2 lakh limit. | Claimable from the first year |
| Appreciation | Higher potential — you buy at an earlier price | Lower — the appreciation has largely happened |
| Choice of unit | Wide. Pick your floor, your view. | Whatever is left |
The GST line is the one buyers forget. On a ₹1 crore under-construction flat, 5% GST is ₹5 lakh you do not pay on a ready-to-move flat with a completion certificate. It closes a large part of the price gap.
Who it suits
It suits you if: you have time, you are buying with a long horizon, cash flow matters more than certainty, you want a specific floor or view, and you are prepared to verify the builder properly.
It doesn't if: you need to move soon, you are already paying rent you can't easily absorb alongside an EMI, or the builder has any history of delay you can find on a RERA portal.
Frequently asked questions
Is GST applicable on under construction property?
Yes — 5% of the purchase value, or 1% if it qualifies as affordable housing, with no input tax credit available to you. On a Rs 1 crore flat that's Rs 5 lakh. A ready-to-move flat with a completion certificate attracts no GST at all.
Can I claim home loan interest on an under construction flat?
Not until you take possession. Interest paid during construction is called pre-construction interest. After possession you may claim it in five equal annual instalments — but within the same Rs 2 lakh annual Section 24(b) cap, not on top of it. In practice the benefit is deferred by however long construction takes.
How much cheaper is under construction property?
Typically 10% to 30% below a comparable ready-to-move flat. But subtract the 5% GST you'll pay and the tax deduction you'll defer, and the real gap is narrower than the headline suggests.
What happens if the builder delays possession?
Under RERA you're entitled to interest for every month of delay beyond the date declared in the agreement, at the same rate the builder would charge you for a late payment. You may also withdraw entirely and claim a full refund with interest.
How do I check if an under construction project is safe?
Look it up on the state RERA portal. Check the declared possession date against what the sales team told you, and check the quarterly progress filings. A project that has stopped filing them has usually stopped building — that's the earliest warning you'll get.