Treatment of Interest on loan for Acquition of Fixed Asset

This query is : Resolved

Mayank Sharda (Querist)
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12 December 2009 During the year we have taken a loan for the construction of the assets and construction of such assets has been started during the construction period of such assets it was sold. Upto the date of sale we have paid interst on such loan.

My query is that wheather interest paid on such loan upto the date of sale of assets was allowed as cost of acquition. If yes please tell me the relevant section under such deduction is allowed.

Pls note that such assets were acquired by an individual for his personel purpose not for business puproses.

Vikram

Vikram (Expert)
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12 December 2009 Please specify which assets I mean House property or others

Mayank Sharda

Mayank Sharda (Querist)
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14 December 2009 it was a house property......

Aashok Kumar Sharma

Aashok Kumar Sharma

(Expert)
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02 August 2025 For **interest on loan taken for construction of a house property used for personal purposes** (not business or rental), here’s how the treatment works under Income Tax law:

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### Treatment of Interest on Loan for Acquisition of House Property (Personal Use):

* **Interest paid during the construction period (pre-construction interest)** and interest paid after completion is allowed as deduction **only if the property is used for earning income** (i.e., rented out).

* **If the house property is for personal use (self-occupied or vacant),** then:

* **No deduction is allowed for interest paid on housing loan** under Section 24(b) or any other section.
* Interest paid cannot be added to the cost of acquisition for capital gains purposes.

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### Since your case involves:

* Loan taken for construction of house property
* Construction started but asset was sold **before completion**
* The asset was for **personal use** (not business or rental)

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### What about the interest?

* **Interest paid up to the date of sale cannot be claimed as deduction** under Income Tax Act as the property was not income-generating.
* Also, this interest **cannot be added to the cost of acquisition** of the house property for capital gains calculation.
* The cost of acquisition will be the actual purchase/construction cost (excluding interest on loan).

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### Relevant provisions:

* **Section 24(b)** of Income Tax Act allows deduction of interest on borrowed capital only if property is used for income (rental).
* Pre-construction interest can be claimed only if the property is held for rental or business purposes.
* If property is sold before completion and is not income-generating, interest expense is **not deductible**.

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### Summary:

| Situation | Treatment of Interest Paid |
| ------------------------------------------------------- | ------------------------------------------------------------- |
| House property for personal use, sold before completion | Interest on loan **NOT allowed** as deduction or part of cost |

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If you want, I can also guide you on how to report this in Income Tax Return or capital gains computation. Would you like that?

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