Home ownership in India is incentivised through various tax benefits. These include income tax deduction to borrowers who purchase a house with the help of a home loan. Borrowers can claim tax deductions for payment of home loan principal amount as well as the interest component under separate sections of the Income Tax Act. In this guide, we will explain how a buyer who has invested in an under-construction property can claim tax benefit against home loan interest payment for a property in a pre-construction stage.
What is pre-construction stage in home loan?
From the time you borrow a home loan till the time your under-construction property is completed is known as the pre-construction period for the purpose of tax deduction calculation. The home loan interest paid by the buyer from the date of borrowing the loan to the end of the financial year immediately preceding the year in which construction is completed is commonly known as pre-construction period interest.
Is tax deduction allowed for pre-construction stage in home loan?
Yes, tax deduction under various sections of the income tax law is allowed for pre-construction stage in home loan. However, there is a catch to this. A borrower can only claim this benefit after the construction work is complete. Home loan interest paid during pre-construction stage can be claimed as deduction in five equal instalments starting from the year in which the construction is completed. This also means that you can claim benefits for interest paid during such year as well as the instalment of the pre-construction period interest with effect from the financial year in which the construction is completed.
Under what sections can I claim deduction for pre-construction interest payment?
A borrower can claim tax deductions for home loan interest payment under Section 24(B) and Section 80EEA.
Section 24(B)
Section 24B provides for tax deductions of varying amounts, based on the type of the property and its use.
Rs 2 lakh in a year
You can claim tax deduction of up to Rs 2 lakh in a year under Section 24B if:
- The property is self-occupied.
- The home loan was borrowed on or after April 1, 1999.
- The house is purchased or constructed within 5 years of taking the loan.
Rs 30,000 in a year
A home loan borrower can claim only Rs 30,000 as tax deduction against home loan interest payment if the loan has been taken for repairs and renovation work. Deduction for interest on home loan will be limited to Rs 30,000 in the following circumstances, too:
- If the loan is sanctioned before April 1, 1999, to buy or build a property
- If the loan is sanctioned on or after April 1, 1999, but construction of the house is not completed within 5 years from the end of the previous year in which the loan was borrowed.
Whole interest paid in a year
The whole amount paid as interest in a year is allowed as a deduction for rented properties. This rule is applicable whether the loan is taken for a home purchase, home construction, home repairing or home re-construction.
Section 80EEA
A taxpayer can get up to Rs 1.50 lakh of deduction under Section 80EEA, over and above the deduction of Rs 2 lakh on interest payment under Section 24(b). To claim the additional deduction, the borrow must also fulfil the additional conditions:
Conditions to claim benefit against interest paid during pre-construction
| Category | Section 24(b) | Section 80EEA |
| Possession | Must | Not required |
| Loan source | Banks or personal sources | Only banks |
| Deduction limit | Rs 2 lakh or entire interest* | Rs 1.50 lakh |
| Property value | No specification | Rs 45 lakh |
| Loan period | Loans taken after April 1, 1999 | April 1, 2019 to March 31, 2022 |
| Buyer category | All home buyers | First-time individual home buyers |
| Lock-in period** | None | None |
*While a rebate of Rs 2 lakh is allowed for self-occupied property, the entire interest is allowed as deduction in case of let-out property.
Under what sections can I claim deduction for pre-construction principal payment?
One can claim tax deduction for pre-construction principal payment under Section 80C of the income tax law.
A deduction of up to Rs 1.50 lakh can be claimed under this section by taxpayers categorised as individuals or Hindu Undivided Families.
FAQs
Pre-construction interest is the money you pay as the interest component in your home loan for an under-construction home.
No, the income tax law offers tax deductions against pre-construction interest. However, it is allowed in 5 equal installments after the construction is complete.
Deduction for pre-construction interest payment for house property can be claimed under Section 24(B) of the income tax act.
You can claim pre-construction interest from the date of borrowing of loan till March 31 before the end of the financial year in which the construction is completed. What is pre-construction interest?
Is pre-EMI fully taxable?
Under what section can I claim deduction for pre-construction interest payment for house property?
How to claim pre-construction interest?
| Got any questions or point of view on our article? We would love to hear from you. Write to our Editor-in-Chief Jhumur Ghosh at jhumur.ghosh1@housing.com |
An alumna of the Indian Institute of Mass Communication, Dhenkanal, Sunita Mishra brings over 16 years of expertise to the fields of legal matters, financial insights, and property market trends. Recognised for her ability to elucidate complex topics, her articles serve as a go-to resource for home buyers navigating intricate subjects. Through her extensive career, she has been associated with esteemed organisations like the Financial Express, Hindustan Times, Network18, All India Radio, and Business Standard.
In addition to her professional accomplishments, Sunita holds an MA degree in Sanskrit, with a specialisation in Indian Philosophy, from Delhi University. Outside of her work schedule, she likes to unwind by practising Yoga, and pursues her passion for travel.
sunita.mishra@proptiger.com
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