Tax rebate on interest paid during Pre-construction interest for house which took more than 5 years to complete.

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Tax rebate on interest paid during Pre-construction interest for house which took more than 5 years to complete.

I booked a flat in 2011 and the possession is in 2018 (construction took more than 5 years) and I started paying EMI on home loan from 2011 itself. According to Sec 24, I can claim tax rebate on pre-construction interest, as a deduction in five equal installments starting from the year in which the property is acquired or construction is completed. There is another aspect in Sec 24 which says that if the construction of the property is not completed within 5 years, the deduction on home loan interest shall be limited to Rs. 30,000. Could you please help me understand whether I can claim the entire interest I paid during construction period or is my rebate limited to 30000 only (including pre and post construction interest). Also is 30000 deducted from the tax outgo or from the taxable income?

Profile photo of Ajish Abraham Asked By: Ajish Abraham 1 replies 1 helpful answers Last Updated: 3 weeks, 6 days ago
  • Profile photo of Ajish AbrahamAjish Abraham
    Participant

    I booked a flat in 2011 and the possession is in 2018 (construction took more than 5 years) and I started paying EMI on home loan from 2011 itself. According to Sec 24, I can claim tax rebate on pre-construction interest, as a deduction in five equal installments starting from the year in which the property is acquired or construction is completed. There is another aspect in Sec 24 which says that if the construction of the property is not completed within 5 years, the deduction on home loan interest shall be limited to Rs. 30,000. Could you please help me understand whether I can claim the entire interest I paid during construction period or is my rebate limited to 30000 only (including pre and post construction interest). Also is 30000 deducted from the tax outgo or from the taxable income?

  • Profile photo of Nitesh BindNitesh Bind
    Participant

    Pre-construction interest is allowed when you have taken a loan for purchase or construction of a house property (not allowed in case of the loan for repairs or reconstruction). The deduction for this interest is allowed in 5 equal installments starting from the year in which the house is purchased or the construction is completed. For example, if construction of your property completed in FY 2016-17, on 25th June 2016, you can claim 1/5th of interest paid up till 31st March 2016 when you file your return for FY 2016-17.

    Though pre-construction interest is allowed to be deducted on the basis of 1/5th each year beginning the year in which the construction is completed – the total amount of pre-construction interest and interest on housing loan that can be claimed in a year should not exceed Rs 2 lakhs in any case. In your case as the construction has taken more than 5 years the deduction for [1/5th pre-construction period interest + Current year housing loan interest] would be limited to Rs. 30,000/- only. further this 30,000/- is deducted from INCOME FROM HOUSE PROPERTY (and not from tax itself ) and on balance income tax is calculated.

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