Housing Loan Interest & Principal Deduction for Pre-Construction Period

By | March 13, 2013

Deduction of Pre-construction period Housing Loan Repayment and Interest

House under construction with energy ratingsI have been asked a question about the claiming of deduction of Housing Loan Principal Repayment and Interest thereon till the time house is not completed or still in construction phase.

In this article we will discuss what would be the status of Housing Loan and Interest in case of house is still under construction.

Deduction of repayment of Housing Loan Principal is governed by section 80C while Deduction of Interest on Housing Loan is governed by section 24 of the Income Tax Act, 1961.

Let us start with understanding the language Section 24(b) regarding Housing loan interest deduction of pre-construction period:

Interest of House loan, if house is not completed by end of previous year [section 24 (b)]

Full Section:

Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal installments for the said previous year and for each of the four immediately succeeding previous years.

If you see the language, it talks about “Acquired or Constructed”, means deduction can be claimed only if the house is completed or acquired/purchased. The interest must be payable by the assessee in the previous year in which such property is acquired or constructed. The deduction could be claimed in five equal installments, commencing from the previous year in which the house is acquired or constructed.

So it is evident from the above that the interest related to pre-construction is not allowed before completion of house.

Now the question arises what is Pre-Construction Period?

Pre-construction period means the period commencing (started) from the date of borrowing and ending March 31, immediately prior to the date of completion of construction /date of acquisition or date of repayment of loan, whichever is earlier.

Above stated interpretation could be easy to understand with an example.

If Sanyam takes a housing loan of Rs 25,00,000 @ 4% p.a. for constructing a House on 1st April, 2009 and Construction of house gets completed on 28th February, 2013, then the pre-construction period is:

Pre-construction period starts from the date on which loan is taken to March 31st, immediately prior to the date of completion of construction.

So in above example house gets completed on 28th February, 2013, pre-construction period is

  • 01-04-2009 to 31.03.2012

Now if the interest for above pre-construction period amounts to Rs 3,00,000 then deduction will be available in 5 equal installments of Rs.60,000 each starting from the Financial year 2012-13 to 2016-17.

Deduction of repayment of House loan Principal, if house is not completed by the end of previous year [Section 80C]:

Full Section

(xviii) for the purposes of purchase or construction of a residential house property the income from which is chargeable to tax under the head “Income from house property” (or which would, if it had not been used for the assessee’s own residence, have been chargeable to tax under that head), where such payments are made towards or by way of (installment of house loan)”

Again, if you look at the language, it says the deduction is available only if the house is chargeable to tax under the head “Income from house Property”.

Further a clarification has been issued by department vide circular no. 498 dated 04.11.1987 that deduction under section 80C for repayment of house loan paid in a previous year can only be claimed if house construction is completed before the end of previous year.

Complete circular is given below

Circular: No. 498 [F. No. 275/111/87-IT(B)], dated 4-11-1987

502. Repayment of loans, etc., taken for purchase/construction of house – Whether deduction admissible under sub-clause (ii) of clause (b) of sub-section (2) where construction of house is still continuing during previous year relevant to assessment year 1988-89

1. I am directed to refer to para 4(8)(e)(ii) of this Department’s Circular No. 489 [F. No. 275/51/87-IT(B)], dated 25-6-1987 [see under section 192] wherein the incentives provided under section 80C to the income-tax payers in respect of housing loans, etc., taken from specified institutions have been explained.

2. References have been received from some quarters inquiring whether the repayment of loans taken for the purchase or construction of a new residential house property, the construction of which is still continuing would qualify for deduction under section 80C.

3. According to the provisions of sub-clause (ii) of clause (h) of sub-section (2) of section 80C, in computing the total income of an assessee, a deduction shall be allowed for any sum paid towards the purchase or construction of a residential house property subject to the fulfillment of the conditions laid down therein. For the admissibility of this deduction, the construction of the house property should be completed after 31-3-1987 and the income from the same should be chargeable to tax under the head ‘Income from house property’ in the relevant assessment year. For the guidance of Drawing and Disbursing Officers and other persons responsible for the payment of income chargeable under the head ‘Salaries’, it is clarified that in a case where the construction of the property does not get completed by the end of the previous year relevant to the assessment year 1988-89, no deduction under this provision shall be admissible to the assessee in the assessment of his income for this assessment year. This aspect may please be kept in mind while deducting the tax at source under section 192 in the financial year 1987-88.

Pre EMI Interest:

Normally we find word ‘Pre EMI Interest’ in Bank Statement and Tax certificate provided by bank for home loan. Here Pre EMI interest is different from Pre construction interest. Pre EMI interest is levied by bank for the period between date of disbursement and start of first EMI.

In the above example bank has disbursed Rs.25, 00,000 on April 2009 and if EMI starts from July 2009, then the Interest from April 2009 to July 2009 will be treated as Pre-EMI Interest.

There is no nexus between Pre-construction Interest and Pre-EMI Interest.

14 thoughts on “Housing Loan Interest & Principal Deduction for Pre-Construction Period

  1. Sudesh Tendulkar

    Hi Sainyam,
    Thanks for such a wonderful article.
    I have one specific question though.
    I have taken a second Housing Loan (for Let out property) in the month of June 2013 and EMI was started immediately.
    The agreement was done in the Month of Mar 2013
    The possession for this property was supposed to be given in the month of Dec2013. However it is delayed and I may get possession in the month of March 2014.

    Now Since the date of possession is March 2014, the pre-construction period turns out to be till March 2013. So 1/5th of the interest paid till March 2013 will be eligible for tax benefit and interest paid starting April 2013 will be eligible for full income tax rebate .

    So the conclusion is if the possession is given by March 2014, I will be eligible for Full Income Tax rebate on the interest paid for the F.Y. 2013-14 i.e. A.Y. 2014-15

    Kindly let me know whether my conclusion is correct?


    1. thesanyamjain

      Yes you conclusion is thoroughly correct. But according to your example, there is no pre-construction interest since EMI started from June 2013, so even if possession happens in march 2013, the pre-construction period happens to be till March 2013.

  2. veda

    i took a LIC housing loan for an ongoing housing project. The EMI started as soon as the first installment was released to the builder. there was no mention of pre-emi or anything…the statement generated fives me the split-up of interest and principle component. can i claim both principle u sec 80c & interest u sec24?

    1. thesanyamjain

      Principal repayment deduction is available only after the house is ready for use i.e. no deduction is available for principal repayment in pre-construction period. But interest paid in pre-construction period is available in five equal installment commencing from the previous year in which the house is acquired or constructed

  3. Anirudha


    Thanks for clarifying pre-construction interest. I have one question. My loan started on Aug’11. Means full EMI started from Aug’11. I got possession on 23 March 2013. So my pre-construction period is Aug’11 to 31March 2012. I hope i am correct here. So i can claim 1/5th of interest paid during this tenure in my income tax return this year?

    Since i got possession in march (within F.Y. 2012-13), can i claim exemption of 1,50,000/- this year (in returns for F.Y.2012-13) ? I will not claim exemption on pre-construction interest then.

    Thanks and Regards,


    1. thesanyamjain

      Yes your pre-construction period is Aug’ 11 to 31st March, 2012 and you are eligible to claim interest paid on house loan in above period from the FY 2012-13 i.e. AY 2013-14 to AY 2018-19.

  4. pankaj

    Hi, I purchased my first home on dec 2012 and will get possession in dec 2014. I paid stamp duty and registration of Rs. 2 lakhs approx. is there any way i can claim these as deduction. if yes under what section.
    pre emi paid till possession will be considered as deduction after possession. will this amount be having any upper cap.

    1. thesanyamjain

      Deduction of the amount of stamp duty and registration can be claimed under section 80C but only in the year of payment of the same.

      No EMI paid before possession can’t be claimed u/s 80C because it talks principal repayment of home loan only where the house chargeable to tax under the head “Income from house property”

  5. Sandeep

    Sir does Pre-EMI Interest can be claimed under sec 80c along with the interest paid for FY 2012-13

    1. thesanyamjain

      Pre-EMI interest can be claimed in 5 equal instalments after the construction of the house ends. That is, it can be claimed in 5 equal instalments starting from the FY in which the construction of the house ends and you get its possession.

      This pre-EMI interest should be claimed along with the interest component of the EMI under section 24. The overall limit remains Rs.1.5 Lakhs even in this case.

  6. Komal

    I spend a monthly 5,000 rupees on my petrol bills and about 8,500 Rs monthly as my car loan emi, Is there any way i can claim them as my tax deductions?

    1. thesanyamjain

      No deduction of personal expenses are allowed.

  7. rinkoo

    I pay hefty amount in my house loans (still under construction from last 3 years and it is not going to complete this year too), Can i claim the principal amount paid in savings? And can i also claim the interest amount paid in savings?

    1. thesanyamjain

      No deduction for Principal Repayment u/s 80C till the house gets completed but interest paid in pre-construction can be claimed as stated above in the article.


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