ITR filing FY 2024-25: How to claim housing loan pre-construction interest

New Indian Express

2 days ago

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Three out of five homeowners building their dream houses overlook a crucial tax deduction. They pay thousands in interest during construction yet fail to claim pre-construction interest benefits. This oversight costs them significant tax savings over five years.
The extended ITR deadline for FY 2025-25 gives you extra time to get this right. Learn how you can secure every rupee you deserve while choosing the best home loan interest rate for your future. Your financial planning starts with understanding these deductions properly.
Understanding pre-construction interest
Pre-construction interest refers to the interest you pay on borrowed funds before your property construction is completed. Section 24(b) of the Income Tax Act allows deductions on this interest component. However, you cannot claim these deductions immediately after paying the interest.
The law requires you to wait until construction finishes before claiming any benefits. Many taxpayers assume they can claim deductions during the construction period itself. This assumption leads to incorrect ITR filing and missed opportunities.
Your home loan documentation will clearly separate principal and interest components during construction. Understanding this distinction helps you calculate accurate deduction amounts later.
The five-year waiting period explained
Pre-construction interest deductions are spread equally across five consecutive years after construction completion. You cannot claim the entire amount in one financial year. The Income Tax Department mandates this five-year distribution to prevent large deductions in single years.
Many taxpayers expect immediate deductions upon completion of construction; instead, they face disappointment. The home loan interest rate you pay during construction determines your total deductible amount. Lower rates mean smaller deductions but also reduced financial burden overall.
This waiting period ensures balanced tax planning across multiple years. Your financial advisor can help you prepare for these staggered deductions properly.
Why early planning matters
Delayed tax planning costs you significant cash flow benefits when construction periods extend. Your monthly budget suffers when you fail to account for future deduction opportunities. Proper planning helps you maximise both current savings and future tax benefits.
Salaried individuals under the old tax regime benefit most from planning. You can adjust your investment declarations knowing these deductions will arrive later. Missing these claims means losing the money you rightfully deserve back from the government.
Step-by-step process to claim pre-construction interest
● Step 1: Calculate the total interest paid from the loan start until the construction completion date.
● Step 2: Subtract any interest amounts already claimed in previous ITR filings.
● Step 3: Divide the remaining balance by five to determine annual deductible amounts.
● Step 4: Enter the annual deductible amount under 'Interest on borrowed capital' in Schedule HP.
● Step 5: Ensure total interest deductions do not exceed Rs. 2 lakh limit for self-occupied properties.
Your home loan documentation provides detailed interest breakdowns for each financial year. Keep these records safe as the Income Tax Department may ask for proof. The home loan interest rate affects your total deductible amount across five years.