Rebate on interest for under construction property

Hi Ravi,

Here’s a detailed reply to your queries on interest rebate for under-construction property loans:

1. Can you claim rebate on interest if builder provides possession by June 2023?

• Under Section 80EEA (and 24(b)) of the Income Tax Act, the interest paid on home loan for an under-construction property is eligible for deduction only after the construction is completed and possession is handed over.

• You can claim interest deduction on the pre-construction period interest (interest paid before possession) in 5 equal installments starting from the year possession is received.

• So, if the builder hands over possession by June 2023, you can start claiming the interest rebate from FY 2023-24 onwards.

• Interest paid before possession but after loan disbursal will be allowed as deduction in 5 equal installments.

2. When does your 5-year timeline for completion end?

• The 5-year timeline for completion (to avail interest deduction) starts from the end of the financial year in which the loan was taken.

• Since you took the loan in Dec 2017 (FY 2017-18), the 5-year period ends on 31st March 2023.

• Possession by June 2023 means possession is after the 5-year period.

3. Is there any relaxation of 5-year timeline due to COVID?

• There is no formal relaxation or extension granted by the Income Tax Department for the 5-year construction timeline due to COVID-19 delays.

• However, courts have sometimes granted relief in specific cases, but there is no blanket extension.

• If possession is delayed beyond 5 years, interest deduction on pre-construction interest may be disallowed.

• You can try to get a certificate from the builder about COVID-related delay and approach the Assessing Officer for relief, but this is discretionary.

Summary:

• You can claim interest deduction on pre-construction interest in 5 installments from possession (expected FY 2023-24).

• Your 5-year timeline ends March 2023, so possession in June 2023 is technically beyond the limit.

• No official COVID-related extension for the 5-year limit, so this might be a challenge.