Preconctruction period interest-allowability and calculation
This query is : Resolved
24 July 2017
I purchased a under construction property in FY 2013-2014 and since then I started paying EMI of about 29K per month. I go the possession of the flat in Feb 17. Therefore I would like to ask following queries-
1. How do I calculate and claim the preconstruction period interest
2. I live with my Father and hence do not own any house however can I show this new flat as deemed to be let out and claim the complete interest, if yes, then do I need to show the property was let out for entire year or only for 2 months (Since possession received in Feb 17)
3. Can I claim both interest in my FY 16-17 return and if yes, what is the limit
4. I am planning to sell this property, what could be the tax implication
Note-I am salaried person...
1. How do I calculate and claim the preconstruction period interest
2. I live with my Father and hence do not own any house however can I show this new flat as deemed to be let out and claim the complete interest, if yes, then do I need to show the property was let out for entire year or only for 2 months (Since possession received in Feb 17)
3. Can I claim both interest in my FY 16-17 return and if yes, what is the limit
4. I am planning to sell this property, what could be the tax implication
Note-I am salaried person...
24 July 2017
1. How do I calculate and claim the preconstruction period interest
Get the break up of EMIs paid in 2013-14,2014-15,2015-16 - You can arrive at the Pre construction period thus.
2. I live with my Father and hence do not own any house however can I show this new flat as deemed to be let out and claim the complete interest, if yes, then do I need to show the property was let out for entire year or only for 2 months (Since possession received in Feb 17)
You cannot since you own only one property. Deemed ownership is not applicable.
3. Can I claim both interest in my FY 16-17 return and if yes, what is the limit?
Yes, you can claim.
Assuming that the house is self occupied, the maximum limit available is Rs.2.00 lacs
Get the break up of EMIs paid in 2013-14,2014-15,2015-16 - You can arrive at the Pre construction period thus.
2. I live with my Father and hence do not own any house however can I show this new flat as deemed to be let out and claim the complete interest, if yes, then do I need to show the property was let out for entire year or only for 2 months (Since possession received in Feb 17)
You cannot since you own only one property. Deemed ownership is not applicable.
3. Can I claim both interest in my FY 16-17 return and if yes, what is the limit?
Yes, you can claim.
Assuming that the house is self occupied, the maximum limit available is Rs.2.00 lacs
26 July 2017
Thanks Sir for the reply and clarity. However I missed to add one important point. I also own one flat jointly with my brother and I pay fixed housing loan instalment for the same. I have been claiming the interest and principal in my earlier years return. In light of this information, can you please guide me on question no 2 & 3
26 July 2017
Thanks Sir for the reply and clarity. However I missed to add one important point. I also own one flat jointly with my brother and I pay fixed housing loan instalment for the same. I have been claiming the interest and principal in my earlier years return. In light of this information, can you please guide me on question no 2 & 3
10 August 2024
### **1. Claiming Pre-Construction Period Interest**
**Pre-construction interest** refers to the interest paid on a housing loan during the construction period of the property. Here’s how you can claim it:
**Calculation and Claim:**
- **Interest for the Pre-Construction Period:**
- Add up the interest payments made during the construction period (from the time you started the loan till the year you received possession). For instance, if you started EMI payments from FY 2013-14 and got possession in February 2017, the pre-construction period would be from FY 2013-14 to FY 2016-17.
- This total pre-construction interest is allowed as a deduction in five equal installments starting from the year of possession.
- **How to Claim:**
- For the FY 2016-17 (Assessment Year 2017-18), you can claim the pre-construction interest as a deduction under **Section 24(b)**.
- The total pre-construction interest is divided into five equal installments, starting from the year of possession, and the amount for each installment is claimed in each year’s return.
### **2. Showing the Property as Let-Out**
**Deemed to be Let-Out Property:**
- **Tax Treatment:**
- If you live with your father and do not own any other house, you can still show the newly acquired flat as a **deemed to be let-out property** for tax purposes. This allows you to claim the entire interest paid on the loan as a deduction under **Section 24(b)**.
- Since you received possession in February 2017, you can treat the property as deemed to be let-out for the remaining part of FY 2016-17.
- **Rental Income:**
- You do not need to show actual rental income if you are declaring it as deemed to be let-out. You need to mention the annual value as `Nil` if you have not rented it out.
- Interest claimed under **Section 24(b)** will not be limited by the rental income but should be in accordance with the provisions.
### **3. Claiming Interest in FY 2016-17**
**Claim Limits:**
- **Pre-Construction Period Interest:** For FY 2016-17, you can claim the portion of the pre-construction interest that pertains to that year. For instance, if the total pre-construction interest is ₹1,00,000, you can claim ₹20,000 (one-fifth) in FY 2016-17.
- **Current Year Interest:** Additionally, you can claim interest on the home loan for the period post-possession under **Section 24(b)**. The maximum deduction allowed is ₹2,00,000 per annum, provided the property is either self-occupied or deemed to be let-out.
### **4. Tax Implications on Sale of Property**
**On Sale of Property:**
- **Capital Gains Tax:**
- **Short-Term vs. Long-Term:** If the property is sold within three years of possession, it is considered a **short-term capital asset** and will be taxed as short-term capital gains. If sold after three years, it is considered a **long-term capital asset**.
- **Long-Term Capital Gains (LTCG):** If it qualifies as LTCG, you can benefit from indexation and exemptions under **Section 54** (if you invest in another residential property) or **Section 54EC** (if you invest in specified bonds).
- **Taxable Gain:**
- **Short-Term Capital Gains:** Taxed as per your applicable income tax slab.
- **Long-Term Capital Gains:** Taxed at 20% with indexation benefits.
- **Pre-Construction Interest Impact:**
- The pre-construction interest claimed in previous years will be adjusted while computing capital gains. If you claim exemption under **Section 54** or **54EC**, the pre-construction interest will not directly impact the exemption but should be considered for overall tax planning.
### **Summary:**
1. **Calculate and Claim Pre-Construction Interest:** Add all interest payments made during the construction period. Claim one-fifth of this amount starting from the year of possession.
2. **Deemed to be Let-Out Property:** You can show the property as deemed to be let-out and claim the entire interest paid.
3. **Claiming Interest:** For FY 2016-17, claim both pre-construction interest (one-fifth) and current year interest, up to ₹2,00,000.
4. **Tax on Sale:** The sale will be subject to capital gains tax, with different treatments for short-term and long-term gains.
Ensure to keep all records of payments and interest statements, and consider consulting a tax advisor for detailed planning and compliance.
**Pre-construction interest** refers to the interest paid on a housing loan during the construction period of the property. Here’s how you can claim it:
**Calculation and Claim:**
- **Interest for the Pre-Construction Period:**
- Add up the interest payments made during the construction period (from the time you started the loan till the year you received possession). For instance, if you started EMI payments from FY 2013-14 and got possession in February 2017, the pre-construction period would be from FY 2013-14 to FY 2016-17.
- This total pre-construction interest is allowed as a deduction in five equal installments starting from the year of possession.
- **How to Claim:**
- For the FY 2016-17 (Assessment Year 2017-18), you can claim the pre-construction interest as a deduction under **Section 24(b)**.
- The total pre-construction interest is divided into five equal installments, starting from the year of possession, and the amount for each installment is claimed in each year’s return.
### **2. Showing the Property as Let-Out**
**Deemed to be Let-Out Property:**
- **Tax Treatment:**
- If you live with your father and do not own any other house, you can still show the newly acquired flat as a **deemed to be let-out property** for tax purposes. This allows you to claim the entire interest paid on the loan as a deduction under **Section 24(b)**.
- Since you received possession in February 2017, you can treat the property as deemed to be let-out for the remaining part of FY 2016-17.
- **Rental Income:**
- You do not need to show actual rental income if you are declaring it as deemed to be let-out. You need to mention the annual value as `Nil` if you have not rented it out.
- Interest claimed under **Section 24(b)** will not be limited by the rental income but should be in accordance with the provisions.
### **3. Claiming Interest in FY 2016-17**
**Claim Limits:**
- **Pre-Construction Period Interest:** For FY 2016-17, you can claim the portion of the pre-construction interest that pertains to that year. For instance, if the total pre-construction interest is ₹1,00,000, you can claim ₹20,000 (one-fifth) in FY 2016-17.
- **Current Year Interest:** Additionally, you can claim interest on the home loan for the period post-possession under **Section 24(b)**. The maximum deduction allowed is ₹2,00,000 per annum, provided the property is either self-occupied or deemed to be let-out.
### **4. Tax Implications on Sale of Property**
**On Sale of Property:**
- **Capital Gains Tax:**
- **Short-Term vs. Long-Term:** If the property is sold within three years of possession, it is considered a **short-term capital asset** and will be taxed as short-term capital gains. If sold after three years, it is considered a **long-term capital asset**.
- **Long-Term Capital Gains (LTCG):** If it qualifies as LTCG, you can benefit from indexation and exemptions under **Section 54** (if you invest in another residential property) or **Section 54EC** (if you invest in specified bonds).
- **Taxable Gain:**
- **Short-Term Capital Gains:** Taxed as per your applicable income tax slab.
- **Long-Term Capital Gains:** Taxed at 20% with indexation benefits.
- **Pre-Construction Interest Impact:**
- The pre-construction interest claimed in previous years will be adjusted while computing capital gains. If you claim exemption under **Section 54** or **54EC**, the pre-construction interest will not directly impact the exemption but should be considered for overall tax planning.
### **Summary:**
1. **Calculate and Claim Pre-Construction Interest:** Add all interest payments made during the construction period. Claim one-fifth of this amount starting from the year of possession.
2. **Deemed to be Let-Out Property:** You can show the property as deemed to be let-out and claim the entire interest paid.
3. **Claiming Interest:** For FY 2016-17, claim both pre-construction interest (one-fifth) and current year interest, up to ₹2,00,000.
4. **Tax on Sale:** The sale will be subject to capital gains tax, with different treatments for short-term and long-term gains.
Ensure to keep all records of payments and interest statements, and consider consulting a tax advisor for detailed planning and compliance.
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