Home loan

Can I benefit from a tax advantage on the mortgage during the pre-construction period?

I am employed in a PSU bank. I had reserved an apartment in Dehradun in 2017 by taking out a mortgage of ??39 lakh. So far, I have not taken possession of the apartment. Please indicate if I am eligible for a tax benefit during the pre-construction period for interest paid on the mortgage.

-Alok Kumar

In accordance with section 24 of the Income Tax Act 1961 (hereinafter referred to as the “Information Technology Act”), the taxpayer would not be allowed to claim the benefit of the interest deduction. until construction of the property is completed. This interest which is paid by the taxpayer from the date of borrowing of the home loan until the end of the fiscal year immediately preceding the year in which construction is completed is commonly referred to as pre-construction interest. and such pre-construction interest can be claimed as a deduction in five equal installments from the year construction is completed. Thus, from the fiscal year in which the construction is completed, the taxpayer can claim both the interest paid during that year as well as the payment of interest from the pre-construction period. However, such a combined interest deduction must not exceed the maximum threshold mentioned in Article 24 of the Law on Information Technology. In addition, the principal component of the repaid loan can be claimed in accordance with Article 80C of the Information Technology Law, even if it is paid during the pre-construction period.

However, Section 80EEA of the Information Technology Act allows for claiming interest paid on a home loan up to Rs. 1,50,000 (regardless of the restriction imposed by Section 24 on interest of the pre-construction period) on the fulfillment of the following conditions:

(i) The home loan was sanctioned during the period starting April 1, 2019 and March 31, 2022.

(ii) The value of the stamp duty of the property of the dwelling-house does not exceed ??45 lakh.

(iii) The individual taxpayer does not own any residential property on the date of sanctioning of the loan.

Thus, if the individual taxpayer fulfills the conditions mentioned in Article 80EEA of the Information Technology Act, he could claim the deduction of interest even during the period before construction.

Dr Suresh Surana, Founder, RSM India.

(Send your questions to [email protected])

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