ITR filing FY 2024-25: How to Claim Housing Loan Pre-construction Interest

When you take a home loan for a property that is still under construction, you usually start paying interest on the loan even before the house is ready to move into.

Studies show that about 60% of homeowners miss out on a major tax deduction.

Despite regularly paying thousands in interest on a home loan during the construction phase, they do not claim the “pre-construction interest” as a deduction while filing their ITRs.

The impact? A higher tax liability and a possibility of attracting an income tax notice. Now, since the ITR deadline for FY 2024-25 has been extended to September 15, 2025, you have extra time to understand what this tax deduction is and how you can claim it.

Read this article till the end to not lose out on this tax-saving opportunity.

What is pre-construction interest?

When you take a home loan for a property that is still under construction, you usually start paying interest on the loan even before the house is ready to move into. This is called “pre-construction interest”.

Now, under Section 24(b) of the Income Tax Act, you are allowed to claim a deduction for this pre-construction interest. But there is a condition. You cannot claim this deduction while the construction is still going on. You are allowed to claim it only after the construction is completed.

You cannot claim a 100% deduction at once

All of your pre-construction interest cannot be claimed as a deduction in one year. Instead, you must divide the total pre-construction interest into five equal parts. You can then claim one part every year for the next five years.

Note that this claim period will start from the year when the construction is completed. For greater clarity, let’s look at an example:

• Suppose you paid a total of Rs. 3,00,000 as pre-construction interest till the date your house was completed.
• Now, as per the Income Tax Act, you cannot claim the full Rs. 3,00,000 in one year.
• Instead, you have to divide it into five equal parts:

1. Rs. 3,00,000/5 years = Rs. 60,000 per year.

Now, let’s say the construction was completed in FY 2024-25 (AY 2025-26). So, from FY 2024-25 onwards, you can claim Rs. 60,000 every year for five years (from FY 2024-25 to FY 2028-29).

Claim pre-construction interest + regular interest

As per Section 24(b) of the Income Tax Act, 1961, once your property is completed, you can claim two types of interest deductions:

1. Pre-construction interest (which is spread over five years)

+

2. Regular interest (the interest you pay on the loan after completion)

Now, the total deduction you can claim further depends on whether your house is self-occupied or a let-out property. Let’s see both these cases below:

Case I: Self-occupied property

• If you are living in the house (or it is kept vacant for your own use), the maximum deduction allowed is Rs. 2 lakh per year.
• This limit includes both regular interest (paid after completion) and the yearly portion of pre-construction interest.
• However, this deduction can only be claimed under the old regime.
• If the total exceeds Rs. 2 lakh, you cannot claim more.
• The extra amount is lost and cannot even be carried forward.

Case II: Let-out (rented) property

• If the property is rented out, there is no upper limit on the interest deduction.
• You can claim the entire regular interest plus the yearly instalment of pre-construction interest.
• This benefit is available under both old and new tax regimes.

Step-by-step process to claim pre-construction interest

Firstly, you can collect proof for claiming this deduction. To start with, you can get your:

• Lender’s interest certificate (shows year-wise interest)
• The possession/completion letter
• The amortisation schedule

Now, once you have gathered the above documents, follow these steps:

Step I: Compute the total pre-construction interest

Add all interest paid during the pre-construction period. If you paid pre-EMIs, those amounts are also considered interest and should be added.

Step II: Split into five parts

Divide the total pre-construction interest by 5. This gives your annual instalment. Now, work out the year’s total interest deduction. For each of the five years starting from the year of completion, add:

• Regular interest for that year

+

• 1/5th pre-construction interest

Step III: Fill ITR [Schedule HP (Income from House Property)]

In this schedule, you can select the property, ownership share, and usage (self-occupied or let-out). Next, enter the combined figure and make sure the total deduction does not exceed Rs. 2 lakh (under the self-occupied option).

If you want to calculate your exact tax liability for FY 2024-25, you can use the online income tax calculator offered by Bajaj Finserv.

Only choose the right home loan partner

When you take a home loan, the choice of your lender is highly significant. That’s because the quality of their documentation determines how easily you can claim the pre-construction and regular interest as a tax deduction.

Bajaj Housing Finance is an upper-layer NBFC, offering competitive home loan interest rates starting from only 7.35% p.a. (for salaried individuals). The organisation follows strict documentation standards and provides clear paperwork showing:

• How much you paid as principal

and

• How much you paid in interest each year

This bifurcation is important because the interest part is what you claim as a deduction under Section 24(b).

With Bajaj Housing Finance, you also get proper interest certificates and loan statements. You will need them when calculating your pre-construction interest and spreading it over five years in your ITR.

Conclusion

Pre-construction interest is the interest you pay on a home loan before your property is completed. You cannot claim the 100% amount in one go; instead, the law requires you to divide it into five equal parts and claim one portion each year.

Once the property is completed, you can claim both regular interest and the annual portion of pre-construction interest (subject to the Rs. 2 lakh limit for self-occupied houses).

To accurately claim these deductions in your ITR, you can maintain documents, such as interest certificates and loan statements. Leading lenders like Bajaj Housing Finance provide you with these records that are highly beneficial while filing ITR.