Tax Query: Claiming tax deductions on under-construction apartment

My wife and I pay a rent of ₹30,000 a month (shared equally). We have booked an under-construction apartment that is expected to be delivered for possession by April 2025, for which we pay a pre-EMI of ₹40,000. Can we claim both the rent amount and pre-EMI for tax deductions?

Partap

In your situation, if both of you are salaried individuals and receive House Rent Allowance (HRA), you’re eligible to claim HRA exemption, subject to certain conditions as prescribed under the Income-tax Act, 1961 (the Act). However, if you’re self-employed and wish to seek exemption for rent paid, Section 80GG of the Act provides for individuals to claim a deduction for accommodation rent, also subject to specific conditions.

Additionally, pre-EMI payments made towards an under-construction property are eligible for deduction under Section 24 of the Act. However, this deduction becomes applicable only upon completion of construction and possession. The interest accrued during the pre-construction period is termed as pre-construction period interest.

The interest pertaining to the pre-construction period is allowable as a deduction in five equal annual instalments, beginning from the fiscal year in which the house property is acquired or constructed. Additionally, the aggregate interest deduction under Section 24 cannot exceed ₹2 lakh per annum for a self-occupied property.

In your scenario, as the apartment is currently under construction with possession expected by April 2025, you cannot claim deduction for pre-EMI payments until construction is completed and possession is taken.

Furthermore, the Act stipulates that if a property, or a portion thereof, cannot be occupied by the owner due to employment, business, or profession necessitating residence elsewhere, the owner may claim exemption for House Rent Allowance and deduction for self-occupied house property. 

Therefore, you can avail both exemptions if you meet the specified conditions for claiming exemption/deduction and provide appropriate documentation to substantiate your claim.

The author is a practising chartered accountant

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