Income Tax || Pre construction Interest in House Property

Deduction for Pre-Construction Interest:

What is pre construction Interest?

Pre-construction interest is the interest paid on a home loan while the residential house is “under construction.” According to section 24 of the Income Tax Act, the interest paid during the construction period can be claimed as a deduction once the property's construction is complete. Note: Pre-construction interest cannot be claimed on loans for repairs or reconstruction.

Conditions for claiming Pre -construction Interest:

1. The loan has been taken after 1st April 1999 for purchase or construction.

2. 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.

3. 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:

Step 1:

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.

Step 2:

Now let’s see what happens if date is more than 5 years:

Restriction on Deduction: If the construction of the property does not get completed within 5 years from the end of the financial year in which the loan was taken, the deduction on interest (including pre-construction interest) for a self-occupied property is reduced to ₹30,000 instead of ₹2 lakh.

Hope this Helps.

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