The house can not be constructed without land. Even when one purchases a flat, the proportionate land is transferred to buyers name. So when you take a home loan for buying a flat , you not only purchase concrete walls and roof, you also use the money to purchase the proportionate land on which the building is situated. Therefore, you will get interest deduction and deduction u/s 80c on principal payments if the construction of house is completed by utilising the loan.

If you do not construct the house on the land you purchased by borrowing money, you can not claim the deduction of interest.The reason is that Land in itself is not house property . The land on which house is situated and land appurtenant to house property are within the definition of house property income of which is chargeable to tax under the head “house property income”

You should note that the deduction of interest starts only when your house is completed and any interest which you have paid before completion is allowed in five installments in years after the completion of the construction. Therefore. There is no need of segregation of the loan .