If you avail of a home loan for buying an under-construction apartment, the tax law provides for a deferred deduction on interest payable during the pre-construction period. The total amount can be availed of as deduction in equal installments over five years starting from the financial year in which the construction is completed. 

Online GST Certification Course by TaxGuru & MSME- Click here to Join

Pre-construction phase is defined as the period starting from the date of borrowing and ending on March 31 immediately preceding the year in which construction is completed. For instance, if you have taken a loan in June 2008 and the construction is completed in May 2010, the period from June 2008 to March 31, 2010 will be deemed to be the pre-construction period.

Now, let’s assume the total loan amount is Rs 40 lakh, borrowed at the rate of 10% per annum. If the total interest payable for the pre-period is Rs 5 lakh, 20% of the amount — Rs 1 lakh — can be added to the interest component of each of the five years, starting from the year in which the construction is completed.

If your house is self-occupied, the deduction on interest payable would be restricted to Rs 1,50,000 per financial year. Also, it needs to be noted that deduction on repayment of principal amount can be claimed under section 80C only from the financial year in which construction is completed.

More Under Income Tax

Posted Under

Category : Income Tax (25157)
Type : Articles (14585)

0 responses to “Tax benefits from under construction flat”

  1. shashi says:

    i am servicing pre emi interest will i get exemption

  2. Biswajit says:

    As mentioned – one can claim the tax benefits for under construction Property in 5 equal installments. Following are my queries.

    1) Is this excemption on Interest have a caviat of 1.5 lacs including current year OR it is 1.5 lac of current year + one fifth (20%) of interest paid towards previous years
    2) Incase the caviat is there for 1.5 lacs including previous intrests paid during pre-construction stage – can i go ahead with closing the Loan and take the benefits of 1.5 lacs per year going forward.
    3) Is entire interest will be considered for benefits for the pre-construction stage or it is limited to 1.5 lacs multiplied by no. of years of pre-construction state.

  3. Krishna Chaitanya says:

    Hello Sir, I purchased a flat in Dec 2009 which is under construction and EMI started from Jan 2010. Can I get tax ememption on a under construction flat. please reply

  4. srinivasan says:

    the section is not clear about the loan taken for the purchase of plot to be alloted in 2 years time . wheter the intrest if paid can be taken if at all the building is contructed in a future date

  5. Mahesh Nandwani says:

    Whether this is in addition to Rs 150000 or not ?

  6. Hemant says:

    Sir,

    If i sell my residential flat, in what period i have to reinvest same in purchase of other flat to avoid tax.

    What will be effect if that amount i invest in Constrution stage ?

    Avaiating your guidance.
    or give me reference of act which i will go through it.

    Thanks & Regards,

  7. Praveer says:

    Very informative. Could you please elaborate on treatment from wealth tax perspective also? What happens if the property is held jointly by husband and wife?

  8. ca.ravi says:

    i purchased flat, it is under construction, EMI for Loan starting from July 2010, Possession is in Feb 2012.
    So before completion of construction can I avail the deduction under section 80C for Principal amount Repayment ?

  9. kamonasish aayush mazumdar says:

    Very Interesting post but can this be claimed for a house that was on construction when bought via loan but was completed some years ago by which time the loan period was also over?

    I am basically asking if i can claim this even if it happened some years ago?

    An urgent reply will be of huge help 🙂

    Thank You and I have subscribed to your newsletter.

    • administrator says:

      Pre construction Interest on Loan can be claimed equally in 5 years starting from the year in which construction completed, even if the Loan account is closed.

Leave a Reply

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