Income Tax on second house

Hi,

The pre-construction interest will be allowed to the extent of 20% for 5 years (20% * 5 years = 100%) from the financial year in which the construction is completed. It means the assessee can avail the exemption for

a. Pre-construction interest over a period of 5 years +

b. Regular interest that is paid in the respective year

Maximise the tax benefit:

1. In case of self-occupied property, the maximum benefit you get is Rs.2 lakhs only

2. If you let it out, you can claim the entire amount of interest as tax benefit.

We would suggest you let out the property once it is completed and claim the entire interest.

No, it is not right. Actually, you get the benefit of interest paid only from the year in which construction of the house is completed. Any interest prior to year of completion is allowed 20% deduction each in the year of completion & 4 subsequent years.

Eg. you pay 1 lac as interest in current year ie 2017-18 and construction is completed in 2018-19. then you get deduction of 1 lac in 5 instalments of Rs 20k each starting financial year 2018-19. For interest paid in 2018-19 and subsequent years, you get full deduction every year subject to max 2 lac.

Hi,

Your understanding is partially correct.

You can claim a maximun deduction of 20% of the interest component of an under construction house in a year. But you will be allowed such deduction for 5 consecutive years, thereby utilising the full interest component as deduction.

Regards

The pre-construction interest can be claimed over a period of 5 years after the construction is completed.

So in the subsequent years, you can claim 20% of the pre-construction interest + the interest paid in each financial year as part of your EMI.

If the house is self occupied, the deduction of interest is limited to 2 lakh rupees but if the house is let out for rent, the entire interest paid can be claimed. However, you will also have to show the income from let out property as your income.

Hope this clarifies.

Dear Raja,

Firstly, there is no such limit of 20%. Secondly you will no get interest deduction till the time property is under construction.

Post construction, you will get interest deduction maximum upto 2 lacs per annum in case property is self occupied.

Hi Raja

For under construction flats, interest for pre construction period is allowed as deduction in 5 equal annual installments starting from the year in which construction is completed.

You can show the property as let out or deemed let out post construction to claim higher interest deduction.

Your information is little bit incomplete. 20% of interest is allowed only after the construction is complete and possession has been given for the house.

Therefore you will get deduction for interest on only the 1st house.

However, for the principal amount paid on 2nd House you will get deduction u/s 80C subject to maximum of Rs. 1.5 Lacs combined with other benefits.

yes pre construction interest can be claimed only after completion certificate is received .it is to be claimed within 5 yrs maximum to 20% per yr.

Benefit of principal and interest on second loan for construction will accrue from the date of completion. Property should get constructed within 3 years from the date of loan.

Hi,

The limit is not 20% but it says that your total accumulated interest for the under construction period shall be claimed for a period of 5 years once the property is constructed.

So, If you pay 100,000/- per year as interest for 2 years then you can claim 40,000/- per year for a period of 5 years once the property is completed.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Hello,

It is not that you can claim only 20% of the interest paid but you will have to claim it for a period of 5 years from the date construction is completed.

So 20% per year till 5 years will make it 100% subject to a cap of Rs.200,000/- year.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, FCA, LLB, CERT. FAFP