In March 2011, I paid ₹2 lakh as advance during the launch of an apartment project. In December 2011, the flat's UDS was registered. My home loan got sanctioned and the first payment was disbursed on June 29, 2012. I started paying full EMI from July 2012. I received the flat completion and possession letter from the builder in September 2015. Will my principal and interest amount (entire interest) be considered for tax exemption from FY 2015-16? Also, is it possible to claim pre-paid interest amount in five equal instalments from the current financial year?

Gopi Kannan

According to the provisions of Section 24 of the Income Tax Act, 1961, deduction for interest paid on the home loan can be claimed under the head “Income from house property” once the possession of the house property is taken. Pre-construction interest, that is, interest prior to the financial year in which the property is acquired, can be claimed in five equal instalments starting from the year in which construction has been completed. For self-occupied property, where the house was purchased or constructed within three years from the end of the financial year in which the capital was borrowed, a deduction for interest payable up to a maximum of ₹2 lakh can be claimed during the year. In case the property is let out or deemed to be let out during the year, interest actually payable during the year can be claimed from the annual rental value of the house property. The deduction in the former case will be subject to a certificate from the lender specifying the interest payable during the year on the capital borrowed.

In your case, the interest for the year beginning April 1, 2015 to March 31, 2016 can be claimed in FY 2015-16. The deduction of pre-EMI interest, paid or payable from July 2012 till March 31, 2015 can be claimed in five equal instalments starting FY 2015-16. Please note that for self-occupied property, where the house property was purchased or constructed within three years from the financial year in which the capital was borrowed, a deduction for interest payable during the year up to a maximum of ₹2 lakh can be claimed during the year (including the pre-EMI interest).

The Act allows a deduction for any repayment of the amount borrowed (principal only) by the assessee for purchase or construction of a residential house property, the income from which is chargeable to tax under the head “Income from house property” which is only when the construction is completed and possession taken. This deduction is available in the overall limit of ₹1.5 lakh u/s 80C of the Act. The principal repaid prior to April 2015 cannot be claimed in the current or future financial years.

The writer is a practicing Chartered Accountant. Send your queries to taxtalk@thehindu.co.in.

The writer is a practicing Chartered Accountant. Send your queries to taxtalk@thehindu.co.in

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