Pre construction period Interest on housing Loan

As per section 24 of Income tax Act, 1961, Interest on borrowed capital is allowable as a deduction if capital is borrowed for the purpose of purchase, construction,repair, renewal or reconstruction of the house property.Please note in case of complete house property ,one can claim interest deduction in the same year but for pre construction period interest on housing loan treatment would be different.

It is to be noted that if money is borrowed prior to acquisition or construction of house property, Aggregated Interest on borrowed capital is also allowable as deduction in five equal annual installments starting from the year in which acquisition or construction is completed as a pre-construction period Interest.Pre-construction Interest deduction is not allowable for renewal, repair or reconstruction of house property.

Illustration: 

Person took home loan on April, 2009 for Rs.10, 00,000 for construction of house property carried Interest @ 10% p.a.. Construction completed on April 2011 and person has paid Rs.2, 00,000 as interest during financial year 2009-2010 and 2010-2011.

Key Data:

Loan taken on                                      : April 2009

Construction completed on               : April 2011

Pre- construction period                    : From April 2009 to April 2011

Pre- construction period interest     : Rs.2, 00,000

Interest Deduction                                : Rs.40, 000 from financial year 2011-12 (AY 2012-13) onwards in 5 equal Annual    installments

Please note that only Pre construction period interest is allowed as deduction and not principal repayment.

Pre EMI Interest:

Normally we find word ‘Pre EMI Interest’ in Bank Statement and Tax certificate provided by bank for home loan.Here Pre EMI interest is different from Pre construction interest. Pre EMI interest is levied by bank for the period between date of disbursement and start of first EMI.

Illustration:

In the above example bank has disbursed Rs.10, 00,000 on April 2009 but EMI starts from July 2009. Hence Interest from April 2009 to July 2009 will be treated as Pre EMI Interest.

There is no connection between Pre construction Interest and Pre EMI Interest.

Print Friendly, PDF & Email
Posted in Finance, Income Tax Tagged with: ,
27 comments on “Pre construction period Interest on housing Loan
  1. ajit says:

    is there any time limit for pre contsruction interest suppose loan is taken in 2001 and construction completed in 2011 will pre construction interest be allowed from 2001 to 2011 to be deducted in 5 instalments from 2011 to 2015

    further new loan is taken in 2011 and regular interest is also commenced and property is let out will regular interest and pre emi interest be allowed in excess of rs. 150000

    • Admin says:

      Hi Ajit,

      Ans-1: there is no time limit for pre construction interest. You can claim interest from 2001 to 2011 in 5 equal installments from 2011. However construction is not completed within 3 years of the end of the financial year in which capital was borrowed, Maximum allowable interest would be Rs.30000 only(subject to actual interest paid) in case of self occupied property.

      Ans-2 if property is let out then there is no limit on for deduction on interest on housing loan. however if new loan is taken to repay original loan , interest will be allowed.

      Regards,
      Your Finance Friend

      • shailesh kakar says:

        Hi,
        In continuation of your discussion, I want to know that if builder delayed the construction of flat, even than buyer will get the tax benefit on Rs 30,000/-.
        For example : I had booked a flat in Sept 10 and EMI started from Oct 10 against a under-construction flat, but builder is delaying the project and will give possession in Apr 15. Whether in this case also interest on pre-construction period will be allowable to maximum limit of Rs 30,000/- p.a. instead of Rs 1,50,000/- p.a.

        Thanks
        Shailesh kakar

  2. Mahadev says:

    Hi,
    Presently I am staying in rented house and brought new flat in the month of April 2012 but I will get an occupancy only in May 2013. Now I am paying both rent and interest on housing loan. My question here is, can I claim both HRA and housing loan interest?

    • Admin says:

      Dear Mahadev,
      You can claim only HRA and not housing loan interest as you have not occupied new property assuming it is under construction. However during FY 2013-2014 and onwards you can claim pre construction interest in 5 annual equal instalments if construction will get complete in FY 2013-14.
      Regards,
      Your Finance Friend

  3. Koushik Das says:

    Hi,
    Actually I am doing job in Bangalore and staying in a rented house here. And this year i purchased one flat in kolkata for my parents (i am not staying there), so i took housing loan and repaying the same (interest + principle). So can i claim both HRA and loan interest amount for tax benefit?

  4. Saket says:

    In such case can we claim interest more than 150000 limit allowed by IT department.

    • Admin says:

      No, in case of self occupied property you can claim housing interest of Rs.150000 maximum per co-owner including pre construction interest subject to actual interest paid.

  5. rajan says:

    I paid pre-posession(construction ) interest and for 2 years and then i sold the flat after 4 months of possession. I sold the flat in feb-2012.

    Can i claim the interest paid for pre-construction period ?

  6. S P Kar says:

    What is the maximum limit of exemtion of I.T. (f.y. 2012-13) on interest on house loan and pre construction period loan interest. Pre construction period interest is over and above to normal interest limit of 1.5 lac per annum?

    • Admin says:

      Maximum Limit for Interest on home loan for Self Occupied property is Rs.1,50,000 p.a. per co-owner including pre construction interest if any.

  7. jasmine says:

    if constuction completed on1-11-2008,started on 15-4-2005 on that date loan had taken for rs 20 lacs for the construction.the loan is repaid on 1-1-2010.
    then what will be the treatment for pre construction interest?????

  8. Adarsh says:

    Please guide me in the following situation what would be my allowable Interest u/s 24(b):
    Loan taken on 01/07/09 Rs. 10,00,000 @ 16% p.a. Construction completed on 30/06/12 and loan repaid on same date. The house has been used as a self occupied property through out the year.

  9. Adarsh says:

    Please guide me in the following situation what would be my allowable Interest u/s 24(b):
    Loan taken on 01/07/09 Rs. 10,00,000 @ 16% p.a. Construction completed on 30/06/12 and loan repaid on same date. The house has been used as a self occupied property through out the year.
    Why isn’t my comment showing up here??

  10. uttam says:

    Dear Sir,

    I have taken the housing loan for which first disbursement starts from Sept 12 & Till Match 13 I paid 60000 interest. The possession is likely in Oct 13. Again from April 13 to Nov 13 I will pay the interest @100000 & From Dec 13 to March 14 I will pay interest @65000.. So to avail the income tax benefit in future I have following question
    1. Can I claim full interest paid from April 13 to March 14 for income tax for FY 13-14 ? as possession is got in same financial year. & from next FY I consider 60000/5=12000/year as a pre EMI tax benefit for 5 years?
    2. Or I can take benefit of interest that will be paid after possession month –Nov 13 to March 14 only ie. 65000 ? & in this case before Nov 13 interest paid all should be consider as per EMI & from next FY the tax benefit for Pre EMI can be taken like (60000+100000)/5=32000/year..

    Or pl clarify in your view how I should go ahead for the max tax benefit in future.

  11. Praim says:

    I Booked a residential unit in Jan 2010. It was booked under construction linked plan.
    I availed a home loan for payment of further amount to builder under construction linked plan.
    Till date (31st Aug’13) I have paid pre emi on said homeloan of Rs/- 200000 to lender (Pre construction interest).
    I am selling this said residential unit, construction of which is almost completed but possesion has not been offered yet. I will effect the sale before possession will be offered by buildor.

    My query:

    1. Will the gain arising on sale of this unit be termed as Long Term Capital Gain (Bought in Jan 2010 and sold in Sep 2013) even if possession is not offered/taken?

    2. Can I deduct pre construction period interest (Pre emi on home loan) from sale price of this residential unit as part of aquisition cost. If not, can I claim tax benefit of Pre construction period interest in any other way?

    Regards
    Praim

  12. Ashish Srivatava says:

    Hi,
    I have taken home loan. Loan sanction date is 11th Dec 2008, while I got possession offer on 31st July 2011 and I did home registration in Sep 11. while I have started paying EMI from Dec 2008 onwards. Its rented out property. SO, whether I can claim pre-construction period interest and what would be the duration of pre-construction period interest, is it Dec 08 to Sep 11 or interest of FY between 08-09 to 2011-2012??

  13. R. NAGARAJAN says:

    I HAVE TAKEN A HBA FROM HDFC IN THE MONTH OF JUNE 2013 FOR CONSTRUCTION OF FIRST FLOOR. THEY HAVE DISBURSED THE ENTIRE LOAN
    AMOUNT IN THE MONTH OF OCTOBER 2013. FROM NOVEMBER 2013 ONWARDS EMI
    HAS BEEN STARTED. MY QUESTION IS, IF I COMPLETE THE I FLOOR
    BEFORE MARCH 2014 AND OFFER ANY RENTAL INCOME, WHETHER I CAN CLAIM THE ENTIRE INTEREST OF HBA I.E. PRE-EMI INTEREST & EMI INTEREST DURING THE SAME FINANCIAL YEAR ITSELF INSTEAD OF CALCULATING THE PRE-EMI INTEREST FOR FIVE YEARS. IF YES, PLEASE PROVIDE THE DETAILS WITH ACT

  14. Vikas says:

    Q1: Is it compulsory to claim pre-possession interest in 5 installments, or can it be taken in 1 or 2 installments also ?
    Q2: Suppose
    2009-10 (prepossession year) interest paid 60K
    2010-11 (1st year of possession) interest paid 200K
    as we can claim pre-possession interest from 1st year of possession. Can we claim 150K + 12K for year 2010-11?
    OR 150k is the upper limit inclusive of both?

    Q3:
    2009-10 interest paid 60K (pre-possession year)
    2010-13 3 years of possession. pre-possession interest not claimed as each year interest was already around 150K.
    2013-14 year’s interest is 100K. Can I claim
    100K + 60K this year ?
    OR
    only 100K + 12K this year and 12K next year and nothing after that ?
    OR
    100K + 50K this year and 10K next year?

  15. Gopinath says:

    I have a question. I registered a property in May 2013 for and took a loan of RS38lakhs. Since the property was under construction (in its final stage to be completed in 6-8 months) the pre-emi for loan began from June 2013 till Dec 2013. After that from Jan 2014 my EMI began as the construction was close to completion. I short my pre-EMI and EMI are with in one financial year only 2013-2014. The EMI after Jan to Mar 2014 comes around 60 thousand and my pre EMI comes to around 1.8 lakhs. Can I claim both pre EMI and EMI in one financial year is my question? Second question is since I would be paying around 3 lakhs as interest in 2014-15 for home loan well above the 1.5lakhs limit of IT exemption can I claim my pre EMi installment of RS.36 thousand(20% of 1.8 lakhs)in 2014-15 over and above the cap of RS.1.5lakhs of IT exemption? I will be at a loss as my pre emi is being split into 5 equal portions (20% each year) Kindly comment on this.

  16. Pravin Dhore says:

    Hi,
    I purchased new house and got possession in 13-14.
    but my current period interest is Rs. 140000/-
    and prior period interest is 290000/- which will divide by 5 for claiming u.s 24(b)

    total claim is Rs. 198000/- (140000+58000 i.e.(290000/5))
    how much i can claim in U/s 24(b)??

    please suggest.

    Thanks
    Pravin

  17. PRASAD says:

    Sir,
    i have paid pre emi interest of 120000 for the financial year 2012-2013 and in 2013 property is registered in my name. And my interest amount for the year 2013-2014 is 282000.The house has been given for rent on this year march onwards.how can i claim this pre emi interest in this return? should that 120000 is to be added to 282000 and shown as total interest on borrowed capital or should that 120000 is to be split for 5 years?Please guide me.
    Regards,
    Prasad

  18. Pankaj Pandav says:

    Hello,
    I took a loan of 26 Lakhs in April 2012 and I got possession of the flat in April 2015. So for Financial year 2015-16, I have paid House Loan Interest 258000. I know that I can claim max 200000 as Home Loan Interest & I have claimed 58000 as principle amount. I wanted to claim Pre-Construction Interest which if i divide in 5 equal parts comes to 82000. Please let me know in above case , can I claim Pre-Construction EMI as well since I have already maxed the Housing Loan Interest Limit.

    • Admin says:

      Dear Pankaj,

      You can claim maximum Rs.2 Lacs Interest for self occupied Property including Pre Construction period interest .

      • Pankaj Pandav says:

        So, Can I claim this in years where Interest would be less than 200000. Or there is limitation of years till which we can claim Pre-Construction EMI.

Leave a Reply

Your email address will not be published. Required fields are marked *

*