A home loan must be taken for the purchase/construction of a house and the construction of the house must be completed within 5 years from the end of financial year in which loan was taken. If you are paying EMI for the housing loan, it has two components – interest payment and principal repayment. The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24 in case of self occupied house.

The Principal portion of the EMI paid for the year is allowed as deduction under Section 80C upto Rs.1.50 Lakh. The tax deduction on principal repayment is also a part of the various deductions allowed u/s 80C, which includes amount invested in PPF Account, Tax Saving Fixed Deposits, Equity Oriented Mutual funds, National Savings Certificate, Senior Citizens Saving Scheme, etc. The deduction limit of section 80C is inclusive of all these options. This tax deduction is available on payment basis and does not depend on the year for which the payment has been made by the assessee

For Assessment Year 2019-20 maximum deduction for interest paid on Self Occupied house property is Rs 2 Lakh & for let out property, there is no upper limit for claiming interest.

The tax benefit under section 24 is reduced from Rs 2 lakhs to Rs 30,000, if the property is not acquired or construction is not completed within 3 years from the end of Financial Year in which the loan was taken. However, the limit of 3 years has been increased to 5 years from Financial Year 2016-17 and onwards

Assesee bought an under-construction house and have not moved in this house yet. But he is paying the EMIs for this loan. In this case, whether he is eligibility to claim interest on the home loan as a deduction during the period falling between the borrowing of loan and completion of construction?

Until construction is complete or acquisition is made, the period is called as “Prior Period”. Period between when the money was borrowed up to construction of the house is called as “Pre-construction” period. Until possession of the house, the borrower will have to just pay interest on the loan amount borrowed to the lender, this is called as “PPI- Prior Period interest”

The income tax law provides for the claim of such interest also, called the pre-construction interest, as a deduction in five equal instalments starting from the year in which the property is acquired or construction is completed.

If borrower repay the principal during pre-construction period to lender, then this is not eligible for tax deductions. Tax deduction benefit is not available on loan taken for buying a plot or land.

To enjoy this benefit it is important that the borrower should furnish house construction completion certificate

If you have claimed the deduction u/s 80C, then you should avoid selling the house property in less than five years from the end of financial year in which you received its possession. If you sell the property within this time limit then you will not be eligible to claim any deduction for the principal repaid during the current F.Y. and the total amount of tax deduction already claimed in respect of earlier years shall be deemed to be your income of such year in which you sold the property and you will be liable to pay tax on that income.

Tax deductions under Section 24 are for interest on home loan and this is on accrual basis

If the home loan taken is not for self-occupation purpose then whole interest amount can be claimed as tax deductions under Section 24. There is no maximum limit for claiming tax deductions for not self-occupied property.

Tax deduction can be availed only if the construction of the housing property is completed within 5 years of taking home loan. Any commission paid towards arranging a home loan is not eligible for tax deductions. Money spent towards registration of the housing property and stamp duty is eligible for tax deductions

In case if the house property is not earning any income to the owner and thus the interest of the home loan is a loss, then such loss can be adjusted against income from various other heads within the same financial year

In case if the loss incurred cannot be set off against income from other heads of the same financial year, such losses can be carried forward upto next 8 years financial years

If the loan is taken jointly, then each of the loan holders can claim a deduction for home loan interest up to Rs 2 lakh each and principal repayment u/s 80C up to Rs 1.5 lakh each in their individual tax returns. To claim this deduction, they should also be co-owners of the property taken on loan.

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6 Comments

  1. Amit Agarwal says:

    Booked property in Aug 2012.
    Loan sanctioned in Aug 2012.
    Got flat possession on Sept 2019 ( after 7 years)
    As per rule: “If property is not occupied within 5 years from the end of the financial year in which capital was borrowed, benefit is restricted to Rs.30000/-”

    Now I want to know : In addition to 30000, can I claim Pre EMI interest benefit if property is acquired after 5 years with below rules.

    Pre-EMI interest (EMI paid before occupation of the house) is deductible in 5 equal instalments starting from the year when the construction is completed or property is acquired.

  2. Manjula says:

    Hi Sir,
    I have taken a home loan in Feb-2019 with holiday period as 12 months from the bank.The EMIs will start from March 2020. And till then we are paying interest every month to the amount taken so far. This interest paid will be 6 lakhs by the Actual EMIs start time by march 2020. Can we claim tax exemption for this interest paid next year. If yes, under which section and how.

  3. Vishnupriya says:

    Dear Sir
    I got a loan in 2014 June and got possession by dec 2018. I want my preconstruction interest also to be put in 24b , so first question , construction is still above 3 years (3.5) and still below 5 years , could I still claim higher than 30, 000 and if so when hould I start claiming in AY 2019-20? or FY 2019-20

  4. Sudhir Agarwal says:

    I have a practical question about interest on pre-construction period.

    I booked under construction house in March 2016 and took housing loan. Occupation certificate is received by the builder in June 2018. I took possession from the builder in April 2019 paying final installment.

    1. So under this circumstances, will interest pertaining to the FY 2018-19 be considered as pre-construction interest?

    2. What happen to the unclaimed pre-construction interest, if the flat is sold before 5 years. Would it be considered as cost of buying in arriaving at capital gains?

  5. Sudhir Agarwal says:

    I have a practical question about interest on pre-construction period.

    I booked under construction house in March 2016 and took housing loan. Occupation certificate is received by the builder in June 2018. I took possession from the builder in April 2019 paying final installment.

    1. So under this circumstances, will interest pertaining to the FY 2018-19 be considered as pre-construction interest?

    2. What happen to the unclaimed pre-construction interest, if the flat is sold before 5 years. Would it be considered as cost of buying in arriaving at LTCG?

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