Understanding Pre-EMI Interest on Housing Loan

Hello and welcome to Part 6 of the income tax education series brought to you by H&R Block, the global leader in filing income tax returns. Today we will talk about implication of taxes on interest on housing loan. Say you have paid huge amount of pre-EMI interest on your housing loan. Can you claim this interest as a deduction from your tax return?

Yes you can claim this interest as a deduction in your return of income from the year in which the construction of your house property gets completed. Often we book a house when it is still under construction in order to get benefit of a lower property rate. This often leads to the bank loan being sanctioned at the time of entering into an agreement of sale with the builder. The bank then starts part disbursements of loan amounts to the builder as the construction work progresses. Once the bank starts disbursing part loan amounts it starts to charge an interest to you and hence interest becomes payable by you. Generally you can claim interest deductions from your income only after the construction of the house gets completed. However the Income Tax Act has a provision to claim the accumulated pre-construction period interest as a deduction in five equal instalments over a period of 5 years starting from the year in which the construction is completed. E.g. If Anna books a house under construction in June 2013 and gets a home loan of Rs. 20,00,000 sanctioned from a bank. Suppose she has to pay an interest totalling to Rs. 200,000 till the year she gets possession of her house in May 2015, then she can claim this entire sum of Rs. 200,000 from the FY 2015-16 onwards as RS. 200,000/5 = Rs. 40,000 each year until FY 2019. This pre-EMI interest is a part of the total Rs. 2,00,000 deduction available for self-occupied house property.

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