sudha (proprietrix) (113 Points)
21 January 2011I have taken a house loan and the property is under construction. My banker has given me a provisional certificate stating the principal and the interest component separately for the current financial year. Can i claim any of the two benefits in my current year tax planning?
reply immediately, please
Pankaj Arora
(Learner)
(3134 Points)
Replied 21 January 2011
No you can take benefit because its under construction. After construction you can take deduction of interest in 3 installments.
john
(LEARNER)
(549 Points)
Replied 22 January 2011
****Pre-EMI Interest*****
The bank may disburse a partial amount to you / builder depending on the stage of construction of the house. In this case, you do not pay an EMI, but instead, pay a pre-EMI interest.
You can not claim any income tax benefit on this pre-EMI interest in the year you pay it to the bank.
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.
(PRE-EMI INTEREST + EMI interest component being paid after possession for the F.Y.)
****EMIs*** before getting possession of the house
Many banks actually disburse the full loan amount even if the construction of the house is not complete. In this case, you start paying the EMIs straightaway. What happens in this case?
Here, you do not get any income tax benefit on the principal amount for the EMIs that you paid before getting possession of your house (as principal component can be claimed only after you get possession of the house).
As discussed earlier, you can start claiming the income tax benefit of the principal amount u/s 80C starting from the financial year in which you get the possession of the house.
The interest component of the EMIs that you paid before getting possession of your house should be treated similar to pre-EMI interest (as explained above).
Thus, you should add up all the interest that you paid throughEMIs before you got the possession of the house, and start claiming 20% of it each year (for 5 years) starting from the financial year in which you got the possession of the house.
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