Deduction for Pre-Construction Interest
What is pre construction Interest?
It is basically the interest paid on home loan while the residential house was “under construction”.
Deduction as per section 24, Income tax Act says that the Interest paid while property was under construction can be claimed once the property construction is complete.
Note: Pre construction Interest is not allowed to be claimed on loans for repairs or reconstruction.
Conditions for claiming Pre -construction Interest
- The loan has been taken after 1st April 1999 for purchase or construction
- The acquisition or construction is completed within 5 years (3 Years till FY 2015-16) from the end of the financial year in which the loan was taken
- There is an interest certificate available for the interest payable on the loan
Taxpayer can claim a deduction of up to Rs.2 lakh on home loan interest if he or his family reside in the house property. The same applies when the house is vacant. If you have rented out the property, the entire interest on the home loan is allowed as a deduction. Your deduction on interest is limited to Rs.30,000 if you fail to meet any of the conditions given above for the Rs.2 lakh rebate.
Process Flow in Software
Go to Transactions>>House property Income>>Select Let out or Self Occupied (as applicable)
Here the Date of completion/ Purchase and Date of Borrowing is Important to Auto -calculate your deduction.
In this Example the Date of completion is within 5 years and hence Software has calculated 2,00,000 deduction.
Now let’s see what happens if date is more than 5 years
Here, as the gap between Completion date and borrowing date was more then 5 years, hence the deduction was restricted to 30,000 only.
Hope this Helps.