Pre EMI interest

Hi

The pre construction interest I.e. interest from 1.4.10 up to 31.3.17 shall be allowable in 5 installments starting from FY 2017-18 up to FY 2021-22.

For FY 2017-18, interest allowable shall be 1/5th of pre construction interest added by interest paid for the FY 2017-18. Accordingly, same for further years.

As per Income Tax Act, 1961 interest till date of completion gets capitalised. No interest shall be debited in P&L Account. Therefore no Pre EMI Interest shall be allowed.

Hi,

Please note that pre-EMI interest is calculated on financial year basis and not on completion date basis. So, as in your case construction was completed on 31.07.2017, pre-EMI interest shall be allowed till 31.03.2017 in 5 equal installments. That means total interest paid from the date of loan i.e. 01.04.2010 till 31.03.2017 shall be allowed in 5 equal installments from the financial year ending on 31.03.2018.

Further, interest paid during the financial year in which construction is completed i.e. FY 2017-18 shall be allowed fully in normal course.

Also, it is important to note that loss from Housing Property for let our property (not self-occupied) is restricted to Rs. 2,00,000/- from the financial year 2017-18. In addition to this, since in your case, construction period is more than 5 years, total interest that can be claimed u/s 24(b) shall be restricted to Rs. 30,000/- only and not Rs. 2,00,000/-, which is the limit u/s 24(b) under normal circumstances.

I hope your query is resolved.

Regards,

Sunny Thakral

Dear Sir/Madam,

To get the deduction of pre-EMI interest under Income tax certain conditions needs to be satisfied which are mentioned as below.

1) Acquisition or construction of house property should be completed within 5 years from the end of the financial year in which the loan was take. In your case, you availed loan on 01.04.2010 so the period of 5 years will be reckoned from 01.04.2011 which comes to 31.03.2016 i.e. construction of house property should be completed upto 31.03.2016 to avail the deduction of pre EMI interest. In your case, construction of house property completed on 31.07.2017 which does not fulfills the above condition.

If the above conditions does not get satisfied, maximum deduction available is Rs.30,000. You are allowed maximum deduction of Rs.30,000 as interest on the construction of the above said property irrespective of anything else.

Thanks

Pre-construction interest that can be claimed in five equal installments

Pre-construction interest deduction is allowed for interest payments made from the date of borrowing till March 31st before the financial year in which the construction is completed.

Now here House completed on 31.7.17, so Interest upto 31.3.17 should be accumulated and then divide it by 5, is allowed as deduction.

Here you have given interest paid upto completion is Rs. 5 lakhs so I assume it is upto 31.7.17. But we need interest upto 31.3.17. If we assume interest upto 31.3.17 is Rs. 5 lakhs, then it will be allowed in five equal installments, i.e., 1 lakh each from 31.3.18 till 5 years.

Hope my answer above is clear in your mind.

In given case the construction is completed on Dt.31.07.2017, the interest till completion is Rs.5lakhs hence Rs.5 lakhs will be treated as pre Emi interest, the deduction will be available from FY2017-18 fro 5 years, hence Rs.1lacs will be available as deduction in FY-2017-18.

Interest for the pre-construction period can be availed for deduction in five equal installments from the year the construction is complete.

In Your Case,

Interest from 1/4/2010 to 31/03/2017 will be available for deduction in 5 equal installments.

Follow Steps below to calculate:

Step 1: Identify the date of borrowal of Home Loan- in your case it is 1/4/2010.

Step 2 : Identify the Date of completion / Acquisition (possession)- in your case it is 31/07/2017

Step 3 : Identify the last date of the Financial Year immediately preceding the date of Completion / Acquisition- in your case, 31/03/2017

Step 4 : Calculate Prior Period. Prior Period = Period from Step 1 to Step 3- in your case from 1/4/2010 to 31/3/2017

Step 5 : Calculate Prior Period Interest i.e., the total interest paid during the prior period.

Step 6 : Calculate Allowable prior period interest (APPI). APPI = Prior period interest as per Step 5 divided by 5.

Hi,

Please let us know whether the property is let out or used by you?

If the property is let out, then the interest deduction would be as sum of following:

1. 1/5 of the total pre Construction interest each year starting from FY 2017-18

2. Total interest paid in each year.

However, if the property is used for self occupation, then the maximum allowable deduction would be INR 30000.

Please feel free to call/ revert in case you need more clarity.

Thanks and regards

Abhishek Dugar

CA CS B.Com

If the house is self occupied

The loan was taken after 1/4/1999 and the construction was completed only after 5 years from the date of taking loan. Hence, the pre-EMI interest will not be allowed as a deduction under Explanation to the second proviso to Section 24(b) of the Income Tax Act.

Current year interest will be allowed only upto Rs 30,000/- under the first proviso.

If the house is let out

You will not get any deduction towards pre EMI interest

The period from borrowing money until the 31 March immediately preceding the year of completion of construction of the house is called pre-construction period.

Pre-construction interest deduction is allowed for interest payments made from the date of borrowing till March 31st before the financial year in which the construction is completed.

Here from 01.04.2010 to 31.03.2017 is pre construction period.. Assuming equal instalment of interest for all years from 01.04.2013 to 31.07.2017 = 4 lakhs for 52 months = 7692 pm.. For 48 months = 369230 ( upto 31.03.2017). + 1lakh upto 31.03.2013= 469230 is total pre emi interest.

Homeowners can claim the deduction on interest for the home loan only from the year in which the construction of the property is completed. In this case, can claim it from FY 2017-18

Now Assuming self occupied property..

This deduction of the pre-construction period is divided in 5 instalments of Rs. 93846 i.e. 1/5th of Rs. 469230 and deduction will be allowed from FY 2017-18, 18-19, 19-20, 20-21, 21-22

Hi,

If you are letting out the property, then the deduction will be for years beginning FY 2017-18:

1. One-fifth of interest paid from 1 April 2010 till 31 March 2017

2. Interest paid in FY 2017-18

You have given the amount of interest paid till 31 March 2013 and 31 July 2017 and not 31 March 2017.

If you are occupying the property yourself, then you can claim deduction of only Rs. 30,000 per year.

Trust this clarifies.

Regards,

Keerthiga Padmanabhan

M.Com., CA, LL.B

Hi,

First let us understand the provision as per Sec 24 B.

The Maximum limit of deduction laid down by Sec 24 b is as follows:

1) In Let Out Property/Deemed to be Let Out – Rs. 2 lakh from Financial Year 2017-18. (There is no limit till F.Y 2016-17)

2) Self Occupied House (SOP) – Rs. 2,00,000. (1,50,000 for A.y 2014-15 and before)

In the following cases the above limit of Rs 2,00,000 for SOP shall be reduced to Rs. 30,000

– Loan borrowed before 01-04-1999 for any purpose related to house property.

– Loan borrowed after 01-04-1999 for any purpose other than construction or acquisition.

– If construction/acquisition is not completed within 5 years from the end of the financial year (3 years till financial year 2015-16) in which capital was borrowed.

Now coming to your query, in your case construction was completed on 31.07.2017 and so pre-EMI interest paid shall be allowed till 31.03.2017 in 5 equal installments. That means total interest paid from the date of loan i.e. 01.04.2010 till 31.03.2017 shall be allowed in 5 equal installments from the financial year ending on 31.03.2018 onwards. For the FY 2017-18, the Interest paid during the financial year in which construction is completed can be claimed in addition to the 1/5th instalment of the Pre EMI interest.

However as per the provision, loss from Housing Property for let out property is restricted to Rs. 2,00,000/- from the financial year 2017-18. Also since the construction period is more than 5 years in your case, the total interest that can be claimed u/s 24(b) shall be restricted to Rs. 30,000/- only and not Rs. 2,00,000/-, which is the limit u/s 24(b) under normal circumstances.

Hope this explains.

Nikhil Khanna

ACA, CS, B.Com (Hons)