Know If You Can Claim Tax Deductions on Home Loan Interest Before Possession

Buying a home is a significant financial decision, and many individuals opt for home loans to fulfil their dream of homeownership. However, what happens when you have taken a home loan but have not yet received possession of the property? Can you claim the home loan interest even before possession? Let us break it down for you in simple terms so you can make an informed decision and get the most out of your home loan.

Understanding home loan interest

Before we delve into the specifics, let us understand how home loan interest works:

1. Interest during construction: When you take a home loan for an under-construction property, the interest starts accruing from the date of each disbursement. This phase is known as the construction period.

2. Pre-EMI interest: During the construction period, you pay only the interest component, which is commonly referred to aspre-EMI interest. The principal repayment begins only after possession.

Additional read: Section 80EE of the Income Tax Act

Can you claim home loan interest before possession?

The straightforward answer is: No, you cannot claim the home loan interest for tax deductions before possession. However, the tax law has made provisions for such cases to ensure that borrowers do not miss out on potential benefits.

Once the construction is complete, and you receive possession of your property, you are eligible to claim the pre-construction interest in five equal instalments over the next five years. This means you can spread out the benefit, starting from the financial year when the construction or purchase is completed.

How to claim home loan interest before possession

Although you cannot directly claim home loan interest before possession, you can get home loan tax benefits on it once you get possession. Here is how it works:

1. Calculate the total pre-construction interest: Determine the total amount of interest paid on your home loan from the date of the loan’s approval until the property’s possession date.

2. Divide into five equal parts: Take the total pre-construction interest and divide it into five equal parts. These parts can be claimed as deductions every year, starting from the year of possession.

3. Add to regular interest deduction: The pre-construction interest is added to the regular home loan interest deduction under Section 24(b) of the Income Tax Act.

For instance, if your total pre-construction interest is Rs. 2,00,000, you can claim Rs. 40,000 every year for the next five years, along with the regular interest deduction of up to Rs. 2,00,000 under Section 24(b).

What is Section 24(b)?

Section 24(b) of the Income Tax Act allows you to claim a deduction on the interest paid on a home loan. This deduction can be availed under two scenarios:

1. Self-occupied property: For a self-occupied house, you can claim up to Rs. 2,00,000 per financial year as a deduction on interest.

2. Let-out property: If the property is rented out, there is no upper limit for claiming interest deduction on home loan. However, the overall loss that can be set off under the head of ‘House Property’ is capped at Rs. 2,00,000.

Additional benefits of home loans

Home loans come with various tax benefits, making them a popular option for home buyers. Here is what you can get:

1. Principal repayment deduction (Section 80C): You can claim up to Rs. 1,50,000 on the principal amount repaid under Section 80C of the Income Tax Act.

2. Stamp duty and registration charges: You can claim these charges under Section 80C, provided they do not exceed the Rs. 1,50,000 limit.

3. Joint home loan benefits: If you and your spouse are co-borrowers and co-owners, each of you can claim separate deductions on interest and principal repayment, doubling the benefits.

Key points to remember

• Interest certificate: Obtain an interest certificate from your lender showing the interest paid during the construction period.

• Claim in ITR: While filing your Income Tax Return (ITR), mention the pre-EMI interest under Section 24(b).

• Joint ownership: If the property is jointly owned, each co-owner can claim a deduction based on their share of the loan.

Choosing the right home loan

Before taking a home loan, understand all the benefits it offers. Loans with competitive interest rates and flexible repayment terms are ideal. Additionally, products like home loan balance transfer and top-up loans can help you save on interest costs. Also use a home loan EMI calculator to check what your monthly payments will look like.

Explore Bajaj Housing Finance Home Loan

For those planning to take a home loan, Bajaj Housing Finance offers convenient funding solutions. Here are a few benefits of opting for a home loan from us:

1. High loan amount: Make your homeownership dreams a reality with a loan amount of up to Rs. 15 crore*.

2. Low interest rates: Enjoy affordable EMIs starting at just Rs. 741/lakh*, with home loan interest rates as low as 8.25%* p.a.

3. Fast approval: Get your loan sanctioned in as little as 48 Hours*, or even sooner.

4. No foreclosure charges: With a floating interest rate, you can prepay or close your loan without any extra fees.

5. Hassle-free application: Our convenient document pickup service means you will not have to visit the branch multiple times.

Do not wait any longer—apply for a Bajaj Housing Finance Home Loan today and move closer to owning your dream home.