Tax rebate on house loan for under construction property

Question

I have purchased a flat which is about to be completed by Dec 2014.

As per the law I can get tax benefits on principle up to 1L rs and interest 2.5L for first 2 years then 1.5L (if first loan, and loan amount <=25L).

I am starting my EMIs from Apr 2014. So I only need to pay interest for current financial year.

Somebody just informed me that I can't avail tax benefits because the property is under construction. Once the construction is completed and I get possession, I can get tax benefit on amount paid after possession.

However I can get tax benefit on the interest I paid during under construction period in next 5 years. Every year I can get the benefit on 1/5 part of interest paid.

Is there any provision, I can get tax benefit on the interest I am paying in this financial year?

Answer 1

The rebate is available from the financial year in which you have taken the possession of the property. All the interest paid in that financial year can be claimed. Any interest paid in the previous financial years has to be pro-rated in next 5 years at 20% [1/5th] each year. The rebate is for combined amount and there is no additional rebate for pro-rated amount.

For example, you have begun payments from say Oct 2013. You have taken possession of the house in Dec 2014.

You can claim rebate from the financial year April 2014 to March 2015.

• The interest payments made from April 2014 to Dec 2014 and up to March 2015 can be included for rebate.
• Additionally the 20% of the interest payments of Oct 2013 to March 2014 can be claimed.
• Note the total limit is same. So if you are exceeding the exemption limit by utilizing the interest payments from April 2014 to March 2015, your 20% of pervious will go unclaimed.
• Same rule applies next year i.e. for financial year April 2015 to March 2016, you can additionally add 20% of Oct 2013 to March 2014 interest within the same limits.

The principal paid if any in the period Oct 2013 to March 2014 cannot be claimed in any year.

Answer 2

Just an additional note, If you plan to rent out your apartment after possession and continue staying on rent at another premises, you can get the entire interest paid as tax-deductible.

Answer 3

From the article - Are you taking full advantage of tax rebates available to home buyers? -

Rebate on Interest Paid Before Possession: Any pre-construction interest is also allowed for deduction only if your project gets completed within 3 years of starting of the construction. Once the house is ready, you can claim the deduction for it within five years from possession in equal installments within the Rs 1.5 lakh under Section 24B. For instance, imagine you have taken a 20-year loan of Rs 30 lakh at 11% annual interest for a property that gets completed in 3 years. By the time you get possession, you would have already incurred an interest of Rs 82,500. Now, going by the above provision, you can claim a deduction in respect of this interest of Rs. 82,500, over and above the yearly rebate available on interest, in five equal instalments of Rs 16,480 each starting from the fourth assessment year. However, if you rent out the property, you can claim the entire interest component as deduction from the rental income as in case of rented property, the actual interest payable is eligible for deduction, thus not being subject to any maximum limit. This applies even in the case where you have two home loans for two different properties, where one is self-occupied and the other is on rent.