The pre construction period is from the day of approval of home loan until the day of completion of the construction of house property. The interest deduction is not allowed while the property is still under construction. However, the interest paid during the pre construction, namely the Pre-construction Interest, is allowed as a deduction in 5 equal installments starting from the year in which the construction of the property is completed.
How to calculate Pre construction Interest?
- Calculate the Pre construction period of constructed house property.
It is from the year of home loan taken till the year in which construction is completed. However, the interest will be allowed from the date of loan taken till the 31st March before the financial year in which construction is completed.
- Calculate the interest paid during the pre-construction period from the interest certificate issued by the bank.
Each year the lending bank issues an annual home loan certificate which provides details of total EMI paid along with Interest and Principal Repayment.
- Divide the total pre construction interest in 5 equal installments.
Claim the deduction of pre-construction interest from the financial year of completion of construction while filing ITR on the Income Tax e-Filing portal under the head “Income from House Property”.
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Example
Kunal has taken a loan for the construction of house property in Pune. Here are the loan details:
| Loan amount | Rs. 30,00,000 |
| Loan taken in | November 2017 |
| EMI | Rs. 25,000 |
| Construction completed in | December 2019 |
Right after the completion of construction, Kunal was able to find a tenant and so he gave the property on rent right away. Kunal wants to know how much tax deduction he can claim for this home loan while filing his return for the FY 2019-20.
As discussed earlier, the homeowner can claim interest deduction from the year in which the construction of the property is completed. Hence Kunal will be able to claim deduction on Pre-construction interest from the FY 2019-20.
Calculation of EMI payments for FY 2019-20
- Total EMI payments in FY 2019-20 = Rs. 25,000 x 12 = Rs. 3,00,000. Out of this Rs. 3,00,000, Rs. 1,35,000 is towards principal repayment
- Hence Rs. 1,35,000 is allowed as a deduction under section 80C of the income tax act.
- So total interest payment for the FY 2019-20 comes to Rs. 1,65,000 and since the property is rented out, Kunal can claim the deduction for the entire interest amount u/s 24(b) while filing ITR.
Calculation of amount paid for Pre-construction interest
- As explained above, the pre construction interest will be allowed in five equal installments from the year in which the construction is completed
- The interest will be allowed from the date of loan taken till the 31st March before the financial year in which construction is completed.
- In this case, the construction is completed in December 2019 so the pre-construction interest will be calculated for 17 months for the period November 2017 till March 2019.
| Financial year | Period | EMI calculation |
|---|---|---|
| 2017-18 | November 2017 to March 2018 | Rs. 25,000 x 5 = Rs. 1,25,000 |
| 2018-19 | April 2018 to March 2019 | Rs. 25,000 x 12 = Rs. 3,00,000 |
| Total | = Rs. 4,25,000 |
- Out of this Rs. 4,25,000, Rs. 1,91,250 is towards principal repayment.
- So the remaining part of Rs. 2,33,750 (Rs 4,25,000 – Rs. 1,91,250) is the pre-construction interest which can be claimed in five equal installments of Rs. 46,750 starting from FY 2019-20.
So Kunal will be able to claim Rs. 1,65,000 + Rs. 46,750 = Rs. 2,11,750 as deduction towards home loan interest in FY 2019-20.
FAQs
The period from borrowing money until construction of the house is completed is called the pre construction period. Interest paid during this time can be claimed as a tax deduction in five equal installments starting from the year in which the construction of the property is complete.
Under Section 24 of the Income Tax Act, an individual can claim tax deduction of the interest payment on the housing loan up to a maximum amount of Rs. 2,00,000. However, there is no limit on the interest payment deduction of the property is rented.
Each joint owner/ co-owner and a borrower can claim Rs 2 Lakhs interest deduction – In case of a joint home loan for self-occupied house property, each of the owners can claim Rs 2 Lakhs in their tax return. The total interest is allocated between them based on their share of ownership.
The taxpayer can file ITR-1 if no co-owner is present. Otherwise, you need to file ITR-2.
Hey Shrey,
The Pre-construction Interest, is allowed as a deduction in 5 equal installments starting from the year in which the construction of the property is completed.
In order to claim such pre construction interest the taxpayer needs to file ITR-1 if no co-owner is present. Otherwise, you need to file ITR-2.
@Saad_C @Kaushal_Soni @Divya_Singhvi @Laxmi_Navlani @AkashJhaveri can you help with this?
Hey @Sivaprakash_S
The deduction for pre-construction period interest is allowed in 5 equal instalments starting from the year in which the house is purchased or the construction is completed.
Here in your case, as completion of construction and interest payment period falling under the same year ie. FY 2020-21, then you can claim entire interest expense while filing ITR for FY 2020-21.
Read below article for more insights about pre-construction period:
Hope, it helps!
@Kaushal_Soni Thank you for your response
@Nireka Thank you too
Hi @snehal_parikh, if it is a self occupied property then you can claim up to Rs. 2 Lakh. You can get to know the details better in the article mentioned below. Hope this helped.
Sir/mam,
I(first time buyer) purchased an plot for self occupation through Bank plot+construction loan and will pay interest 50,000 from December 2021 to March 2022 and Bank will give me construction Certificate in March 2022.
As i am government salaried person and submitted all tax details of FY2021-22 with Employer’s green sheet except pre-construction interest.
There are some questions of my above case only in which i have some confusion:
When do we have to make this 50,000 claim:
OR
Under Section 24(B), Preconstruction interest can be claimed in 5 equal instalment after completion
of construction.In My case,
Home Loan Interest of FY2021-22 = 50,000 (10K + 10K + 10K + 10K + 10K)
Home Loan Interest of FY2022-23 = 1,50,000
How much interest amount of FY2021-22 can claim in Fy2022-23:: 50,000 or 10,000 ?
Can anyone claim more than one installments at same time if the total amount does not exceed 2 Lakh by adding that installment amount ?
Regards
KS
@Anar_Desai, needing insights here.
Hey @Kuldeep_Singh,
The period from borrowing money until the construction of the house is completed is called the preconstruction period. You are receiving construction certificate in March 2022. So, we are assuming that the construction got completed in March 2022. Hence, Interest paid before March, 2022 will be pre construction interest. The interest will be allowed from the date of loan taken till the 31st March before the financial year in which construction is completed. This interest has to be divided in 5 equal installments and claimed every year for 5 years.
So, from FY 22-23, you can claim 10K (50K/5) every year as pre construction interest in your return of income.
As per the Act, the claim has to be divided in 5 years. So, you cannot make lumpsum claim.
For better understanding, please read the following article.
Hope it helps.
Hello @vinod08,
The total amount of pre-construction interest (1/5th) and current year’s interest that can be claimed in a year should not exceed INR 2,00,000/- under Income from House Property.
Hope this helps!