The pre-construction period starts from the home loan approval day and ends on the day of property construction’s completion. Even though the interest deduction isn’t allowed while the property is still under construction, the interest paid during the pre-construction is allowed as a deduction in five equal installments beginning from the year in which the property’s construction is completed. Read below to know how to calculate pre construction interest in house property:
Step 1) Calculation of the Pre-construction period of the constructed property.It starts from the year of the home loan availed and ends on the year in which the house property is completely constructed. However, the interest will be allowed from the date of loan availed till March 31st before the financial year in which construction is done.
Step 2) Calculation of the interest paid during the pre-construction period from the home loan certificateEvery year the bank issues an annual home loan certificate which includes details of total EMI paid along with principal repayment and interest.
Step 3) Division of the total pre construction interest in five equal installments.The deduction of pre-construction interest from the financial year of construction completion can be claimed while filing ITR on the official e-filing website under the head “Income from House Property”.
Let’s understand how to calculate pre construction interest in house property using an example:
Mrunal has availed a loan for the construction of the property in Pune. Check out the details of the loan:
Loan availed in: November 2017
Loan amount: Rs. 30 lacs
EMI: Rs. 25k
Construction was completed in: December 2019
He rented out the property immediately.
In this case, he can claim the deduction on Pre-construction interest from the Financial Year 2019-2020.
Now, total EMI payments in FY 2019-20 = Rs. 25,000 x 12 = Rs. 3,00,000. Out of this Rs. 3,00,000, Rs. 1,35,000 is towards principal repayment
Hence Rs. 1,35,000 is allowed as a deduction under section 80C of the income tax act.
So total interest payment for the Financial Year 2019-2020 comes to Rs. 165000 and since the house is rented out, he can claim the deduction for the entire interest amount under section 24(b) while filing ITR.
In this case, the calculation of the pre-construction interest will be done for 17 months from Nov. 2017 to March 2019 since the construction is completed in Dec. 2019.
| Financial year | Period | EMI calculation |
2017-2018 |
Nov. 2017 to Mar. 2018 |
Rs.25,000x5 = Rs. 125000 |
2018-2019 |
April 2018 to Mar. 2019 |
Rs.25,000x12=Rs. 300000 |
Total |
= Rs. 425000 |
Out of this, Rs. 425000, Rs. 191250 is towards principal repayment. The remaining Rs. 2,33,750 is the pre-construction interest which he can claim in 5 equal installments of Rs. 46,750 starting from Financial Year 2019-2020.
So Mrunal can claim Rs. 165000 + Rs. 46750 = Rs. 211750 as deduction towards home loan interest in Financial Year 2019-2020.
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This is how to calculate pre construction interest in house property.
How to calculate pre construction interest in house property?
Chirag
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2022-03-02T12:37:56+00:00 2022-03-02T17:35:21+00:00Comment
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