Ramesh, a textile trader from Panipat had to drive more than 40 kilometers everyday from his house to his office each day. The daily driving was not only burning a hole in his pocket but was also making his sluggish and unproductive at work. What if I buy a small plot of land near the office and build a second home wondered Ramesh. He approached his bank for a land loan to purchase a plot of land near his office but to his utter surprise his application was rejected as the plot came under an industrial area and outside municipal limits. Ramesh had more questions than answers after his land loan application was rejected by the bank. Here are the five questions that like Ramesh everyone willing to take up a land loan must know before applying.
So who can get land Loan?
Land loans are offered by banks and non banking financial companies to all Indian residents above the age of 21 years. Some banks also offer land loans to non residents Indians if the land is being bought to construct a house. For Indian residents, land loans are available to both salaried as well as self employed individuals with a good repayment history. The only catch when applying for a land loan is to make sure the plot of land that you are seeking to purchase is a residential plot and not an agricultural or commercial land and comes within the corporation / municipality limits. For resident Indians, land loans are available in both cases whether you are looking to construct a residential home on the plot or simply buy it as a future investment.
What's the maximum possible loan I can get for purchasing land?
Unlike traditional home loans where the loan is offered for under construction or fully constructed property, land loans offer a maximum loan of up to 70% of the cost of the plot in urban centers. In case of smaller cities or towns, the maximum LTV ratio for land loans is usually fixed at 50%-60% of the total cost of the plot. This means that if you are seeking to buy a plot of land through a land loan, you would have to shell out anywhere between 30 to 50% of the plot cost as down payment from your own pocket.
Will I be eligible for tax rebates for a land loan?
Even though land loan comes as part of home loan offerings of banks, you are not eligible for income tax deduction for payments made towards repayment of a home loan, taken for land purchase. However the silver lining to the dark cloud is the fact that if you start construction activity on the purchased plot, then you become eligible for a tax benefits for that part of the loan. The deduction however is applicable only in the year in which the construction activity gets completed.
What are the documents I need to submit for a land loan?
Depending on your eligibility criteria, you would need to submit your identity and address proof details to the bank. Salaried individuals need to submit their salary slip as proof of income along with photocopy of last 6 months bank statement showing salary credits. You would also need to furnish all site ownership documents in the name of your seller, to the concerned bank or NBFC. This includes no encumbrance certificate, possession certificate, location certificate and back documents of last 15 years.
Home Loans versus Land Loans at a Glance:
| Land Loans | Home Loans | |
| Eligibility | Resident Indians and NRIs | Resident Indians an NRIs with preconditions |
| Interest Rate | Based on Base Rate | As per Base Rate |
| Tax Deductions | No Tax Deductions, only available for the year of Construction | Available for both repayment towards home loan interest and principal amount |
| Tenure | 10-15 Years | Up to 30 Years |
| LTV | Maximum limit of Up to 50% to 70% of plot cost | Up to 80% |
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