People say "home loan" for all three of these, and then discover at sanction that the product they were given funds less, runs shorter, and carries very different tax treatment from the one they had in mind. Here is what separates them.
First, the Income-tax Act, 2025 replaced the 1961 Act on 1 April 2026. Section 24(b) is now Section 22; Section 80C is now Section 123 read with Schedule XV. Almost every page you will find still cites the repealed sections. Second, and far more important: the new tax regime is now the default, and under it a self-occupied home loan gives you no interest deduction and no principal deduction at all.
The three products
Plot loan
Finances the purchase of a residential plot only. The RBI's Master Circular on Housing Finance permits bank finance for a plot "provided a declaration is obtained from the borrower that he intends to construct a house on the said plot ... within such period as may be laid down by the banks themselves."
Note how that splits. The declaration is required by the RBI; the deadline is set by each bank. This is why lenders differ — SBI's plot product requires construction within 3 years of sanction or disbursal, ICICI's within 4 years of disbursement.
Construction loan
Finances construction on a plot you already own. Released in tranches against construction progress, not upfront. The RBI is explicit that disbursal "should be closely linked to the stages of construction" and that upfront disbursal should not be made for incomplete or greenfield housing.
Composite loan
A single sanction covering both the land purchase and the construction that follows. SBI's version describes exactly this: purchase of plot as well as construction of house in one composite loan, with an upfront sanction that gives you the comfort of knowing construction finance is already approved before you buy the land.
In practice the land portion is released as a lump sum at purchase, and the construction portion in stages as work progresses — typically into your own account rather than to a builder.
How much you can borrow
For home loans, the RBI sets loan-to-value ceilings by ticket size:
| Loan amount | Maximum LTV |
|---|---|
| Up to ₹30 lakh | 90% |
| Above ₹30 lakh to ₹75 lakh | 80% |
| Above ₹75 lakh | 75% |
For plot loans, we could find no RBI-prescribed cap at all — the RBI's table governs individual housing loans. Plot-loan LTV appears to be lender policy rather than regulation, and lenders commonly fund around 70 per cent of land value. That distinction matters: it means the figure is negotiable in a way a regulatory cap would not be, and it varies between banks. Ask each lender directly.
How long you get
This is where the gap is starkest, and SBI illustrates it cleanly with two of its own products:
- Plot purchase product: 15 years maximum
- Composite (plot plus construction) product: 30 years maximum
ICICI's land loan runs to 20 years. A shorter tenure on the same principal means a materially higher EMI, which is the practical reason a composite loan often beats buying the plot on a plot loan and arranging construction finance separately later.
On interest rates
You will read everywhere that plot loans cost 0.25 to 1 per cent more than home loans. We could not verify that. SBI publishes no separate rate for its plot or composite products, and at least one lender states plainly that plot and home loan rates are similar, with some banks charging a few basis points more. Treat rates as broadly comparable, and compare actual sanction letters rather than headline rates.
Tax — the part worth reading twice
First: which regime are you in?
Under Section 202 of the Income-tax Act 2025, the new regime applies automatically unless you opt out. And under the new regime:
| Old regime (must opt out to get it) | New regime (default) | |
|---|---|---|
| Interest — self-occupied | Up to ₹2,00,000 | Not allowed |
| Interest — let out | No limit | Allowed against rental income |
| House property loss set off against salary | Up to ₹2 lakh a year, carried forward 8 years | Not allowed, not carried forward |
| Principal repayment | Up to ₹1,50,000 | Not allowed |
If anyone sells you a property on the basis of "you'll save three and a half lakh in tax", the first question to ask is which regime you are in. For a majority of taxpayers on the default regime buying a home to live in, the answer is that you save nothing.
Second: what each loan type allows
| Loan type | Interest (Sec 22) | Principal (Sec 123) |
|---|---|---|
| Plot loan, no house built | Nothing. No house property exists, so there is no income under that head and no deduction | Nothing |
| Plot loan, house built later | Available once construction completes; the plot-stage interest becomes pre-construction interest | Available on principal repaid once complete |
| Construction loan | From the year construction completes | Available |
| Composite loan | Same — the land component is not separately disqualified once a house stands on it | Available |
ICICI states it flatly on its own land loan page: no income tax benefits are available for land loans. If you buy a plot as an investment with no intention to build, there is no deduction, full stop.
Third: the five-year condition
The ₹2,00,000 interest limit for a self-occupied house applies only if acquisition or construction is completed within five years from the end of the tax year in which the money was borrowed. Miss it and the deduction falls to ₹30,000. It is not lost entirely, but it is cut to a seventh.
Note that SBI's three-year construction deadline is shorter than the tax deadline. Satisfying your bank generally means satisfying the tax condition — but not the other way round.
Fourth: pre-construction interest
Interest paid before the house is complete is not deductible as it accrues. It is aggregated and allowed in five equal annual instalments starting in the year construction completes.
One nuance that blogs routinely get wrong: for a self-occupied property, that instalment is not additional to the ₹2 lakh cap. It falls within it. On a let-out property, interest is deductible without limit — though the loss you can set off against other income is capped at ₹2 lakh a year, with the balance carried forward up to eight years.
What these loans will not fund
- Agricultural land. Plot loans cannot be used to buy it. If the jamabandi still says agricultural, the loan will not happen — which makes conversion status a financing question, not just a legal one.
- Plots outside municipal or corporate limits, under most lenders' norms.
- Multi-unit or commercial development. ICICI, for example, restricts land loans to individual residential units for self-consumption.
One piece of genuinely good news
The Rajasthan Budget 2026-27, presented on 11 February 2026, reduced registration fees on loan documents from 1 per cent to 0.5 per cent, capped at ₹1 lakh. On a large mortgage that is a real saving, and it applies to the loan documentation rather than the sale deed.
This is a summary of published rules as at September 2026, not a recommendation. Tax treatment depends on your regime, your other income and your specific facts — speak to a chartered accountant before deciding, and get loan terms in writing from the lender rather than from anyone selling you property.