Can I get tax benefit on home loan during pre-construction period?

– Alok Kumar

In accordance with Section 24 of the Income Tax Act, 1961 (hereinafter referred to as ‘the IT Act’), the taxpayer would not be allowed to claim the benefit of interest deduction unless the construction of the property is completed. Such interest which is paid by the taxpayer from the date of borrowing the housing loan to the end of the financial year immediately preceding the year in which construction is completed is commonly known as pre-construction period interest and such pre-construction period interest can be claimed as deduction in five equal instalments commencing from the year in which the construction is completed. Thus, with effect from the financial year in which the construction is completed, the taxpayer can claim for both the interest paid during such year as well as the instalment of the pre-construction period interest. However, such combined interest deduction should not exceed the maximum threshold limit as mentioned in S. 24 of the IT Act. Further, the principal component of the loan repaid can be claimed u/s 80C of the IT Act even though the same is paid during the pre-construction period.

However, Section 80EEA of the IT Act provides for claiming of interest paid on housing loan up to Rs. 1,50,000 (irrespective of the restriction imposed by S. 24 on the pre-construction period interest) on fulfilment of the following conditions:

(i) The housing loan has been sanctioned during the period commencing from 1st April 2019 and 31st March 2022.

(ii) The stamp duty value of the residential house property does not exceed ₹45 lakh.

(iii) The individual taxpayer does not own any residential house property on the date of sanction of loan.

Thus, if the individual taxpayer is fulfilling the conditions as mentioned in S. 80EEA of the IT Act, he would be eligible to claim the interest deduction even in the pre-construction period.

–Dr. Suresh Surana, Founder, RSM India. 

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