Understanding pre-EMI interest deductions on home loans: What you need to know

I took a housing loan from HDFC in 2022 to purchase a Flat and have been claiming a rebate on the Interest component under Sec 24 and the Principal Component under Sec 80C while filing IT Returns. The Interest component was around ₹1.75 lakh for the last financial year. I have taken another loan for ₹75 Lakhs for an under-construction house for which the EMI commences in August 2024. Till then, I have paid only pre-EMI Interest. Please clarify whether pre-EMI interest qualifies for a tax rebate. Can I claim a rebate for the Interest component under Sec 24 for both loans? The first house is on rent, and the second one is being constructed and handed over in December 2024. I have been following the old tax regime.

Assuming that the under-construction flat is delivered at least in the last quarter of the financial year 2024- 2025 and you continue to opt for the old tax regime, the answers are as follows: The deductions for home loans are available only from the year in which the construction is completed, and possession is obtained, in your case, the financial year ending March 31, 2025.

Pre-EMI Interest Deduction Guidelines for Home Loans: Key Points

 

The aggregate of all the pre-EMI interest paid till March 31, 2024, will be available as a deduction in 5 equal instalments beginning from the financial year ending March 31, 2025, i.e. one-fifth of the aggregate pre-EMI interest can be claimed to start from the year in which you take possession of the property. Complete pre-EMI interest, if any, paid during the year 2024-2025 shall be allowed during the same year and shall not be added for 1/5 claim. This deduction and the interest payable for the financial year will be subject to an overall limit of Rs. 2 lakhs if the property is self-occupied. Any principal portion of the loan repaid till March 31, 2024, i.e. the year before you get the possession, will not be eligible for any deduction under section 80C. The aggregate deduction available for repayment of all home loans taken together under section 80 C is restricted to Rs. 1.50 lakh, along with the other eligible items qualifying for deduction under 80 C in a year.

Under section 24, the total interest paid on the loan taken regarding the let-out property can be claimed. However, loss under the house property head up to ₹2 lakh is allowed to be set off against other income during the year, and loss not so set off can be carried forward for eight years, which can be set off against positive income, if any, under the house property head.

Balwant Jain is a tax and investment expert and can be reached on jainabalwant@gmail.com and @jainbalwant on his X handle.