Home Loan
This query is : Resolved
18 September 2010
Now a days bank allow to pay emi even if the flat is not ready,instead of pre-emi.we have opted for such option,but due to delay in schedule flat will only be ready next year.Can we get tax benefit in emi even if flat is not ready,please tell is there any other benifit.?
18 September 2010
Pre construction interest can be claimed in 5 equal installment only after the construction is complete. before contruction not to be claimed
18 September 2010
INTEREST ON PRE-CONSTRUCITON – HOUSE LOAN – INCOME TAX
Money may be borrowed prior to the acquisition or construction of the property. In such a case, interest paid/payable before the final completion of construction or acquisition of the property will be aggregated and allowed for five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.
Example:- The assessee took a loan of Rs. 3,00,000/- in April, 1999 from a Bank for construction of a house on a piece of land which he owns at Meerut. The loan carried interest @ 15% p.a. The construction is completed in April 2001 and the house is given on rent from May 2001. Meanwhile he has already incurred liability of interest of Rs. 90,000/- for F.Y. 1999-2000 and 2000-01. Because of the above provision, the assessee can claim a deduction in respect of this interest of Rs. 90,000/- (Over and above the yearly interest) in five equal instalments of Rs. 18,000/- each starting from the assessment year 2002-03.
Pre EMI-Interest And Pre-Construction Period interest
Normally we read a term in our Bank loan statement " pre EMI interest" but remember the pre EMI interest term given in Loan Statement is not necessarily same meaning as pre construction period as per income tax act.
As per Income tax pre construction period means
Interest up to the end of Financial year ,immediate proceeding to the year in which house is completed.
suppose loan is taken on Jan ,2008 and House is completed on 31.01.2010, in that case pre -construction Interest is taken from Jan 2008 to March 2009.
In above example ,even if House is completed on 31.03.2010 then also the pre construction Interest is considered From Jan 2008 to march 2009.
As per Bank Pre -EMI interest means ,Interest Due up to the start of payment of First Instalment..So term used in Bank statement or loan certificate is not similar as defined in Income Tax Act.
In above example suppose bank has granted and disbursed the Loan in Jan 2008 but EMI started from Jan 2009.Then Interest from JAN,2008 to Jan 2009 is treated as PRE-EMI interest By the bank.
Instalments Of pre-Construction Interest as per Income Tax Act.
Suppose : Person has taken a Loan of 10,00,000 in July 2007 @ 10% and house is completed in Jan ,2010.
Year wise Interest is
FY 2007-08=60000(July to March)
FY 2008-09=80000
FY 2009-10 =70000
then define Pre construction period and how much amount will be allowed u/s 24(b) year wise
In above example ,pre construction period is July 2007 to March 2009 and pre construction period Interest is 140000(60000+80000) ,and deduction of the pre construction period is divided in 5 instalments of 28000 (140000/5).and deduction will be allowed from FY 2009-10.
so in FY 2009-10 interest allowed will be 70000+28000(ist instalment of pre construction period)=98000
and 28000 will also be allowed in 2010-11,2011-12,2012-13 and 2013-14 as pre construction period interest in addition to normal interest due in given years.
Money may be borrowed prior to the acquisition or construction of the property. In such a case, interest paid/payable before the final completion of construction or acquisition of the property will be aggregated and allowed for five successive financial years starting with the year in which the acquisition or construction is completed. This deduction is not allowed if the loan is utilized for repairs, renewal or reconstruction.
Example:- The assessee took a loan of Rs. 3,00,000/- in April, 1999 from a Bank for construction of a house on a piece of land which he owns at Meerut. The loan carried interest @ 15% p.a. The construction is completed in April 2001 and the house is given on rent from May 2001. Meanwhile he has already incurred liability of interest of Rs. 90,000/- for F.Y. 1999-2000 and 2000-01. Because of the above provision, the assessee can claim a deduction in respect of this interest of Rs. 90,000/- (Over and above the yearly interest) in five equal instalments of Rs. 18,000/- each starting from the assessment year 2002-03.
Pre EMI-Interest And Pre-Construction Period interest
Normally we read a term in our Bank loan statement " pre EMI interest" but remember the pre EMI interest term given in Loan Statement is not necessarily same meaning as pre construction period as per income tax act.
As per Income tax pre construction period means
Interest up to the end of Financial year ,immediate proceeding to the year in which house is completed.
suppose loan is taken on Jan ,2008 and House is completed on 31.01.2010, in that case pre -construction Interest is taken from Jan 2008 to March 2009.
In above example ,even if House is completed on 31.03.2010 then also the pre construction Interest is considered From Jan 2008 to march 2009.
As per Bank Pre -EMI interest means ,Interest Due up to the start of payment of First Instalment..So term used in Bank statement or loan certificate is not similar as defined in Income Tax Act.
In above example suppose bank has granted and disbursed the Loan in Jan 2008 but EMI started from Jan 2009.Then Interest from JAN,2008 to Jan 2009 is treated as PRE-EMI interest By the bank.
Instalments Of pre-Construction Interest as per Income Tax Act.
Suppose : Person has taken a Loan of 10,00,000 in July 2007 @ 10% and house is completed in Jan ,2010.
Year wise Interest is
FY 2007-08=60000(July to March)
FY 2008-09=80000
FY 2009-10 =70000
then define Pre construction period and how much amount will be allowed u/s 24(b) year wise
In above example ,pre construction period is July 2007 to March 2009 and pre construction period Interest is 140000(60000+80000) ,and deduction of the pre construction period is divided in 5 instalments of 28000 (140000/5).and deduction will be allowed from FY 2009-10.
so in FY 2009-10 interest allowed will be 70000+28000(ist instalment of pre construction period)=98000
and 28000 will also be allowed in 2010-11,2011-12,2012-13 and 2013-14 as pre construction period interest in addition to normal interest due in given years.
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