What is Pre-Construction Interest?
Deduction on home loan interest cannot be claimed when the house is under construction. This pre-construction interest can be claimed only after the construction is finished.
Read this example to understand how it can be claimed.
Prakash took a loan of Rs.20 lakhs to start construction of his house property in Bhubaneshwar in July 2012. He has been paying EMI of Rs.18,000 ever since. The construction was completed in August 2014 and he received a completion certificate. This house has been on rent from September.
Prakash is not sure how he can claim deduction on interest for home loan in his income tax return.
Homeowners can claim deduction on interest for home loan only from the year in which the construction of the property is completed. In this case, Prakash can claim it from FY 2014-15.
Let's start with his EMI payments this year:
Now let's look at interest paid when the house was under construction:
FY 2012-13 - July 2012-March 2013 >> 18,000 X 9 = 1,62,000 |
---|
FY 2013-14 - April 2013-March 2014 >> 18,000 X 12 = 2,16,000 |
This adds up to Rs.3,78,000. |
So Prakash can claim Rs.2,02,000 + Rs.70,800 = Rs.2,72,800 as deduction towards interest from home loan in FY 2014-15.
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