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Information required on pre emi interest

kathir (MBA) (29 Points)

19 January 2015

I would like to know how construction period is calculated to determine pre EMI interest for home loan. In my case the house is under construction, I got the loan sanctioned and first dibursement happend in march 2012 and last disbursement in the month of october 2012. I started paying interest from april-2012. If I get the possession in June 2015 , will I be able to get the pre EMI interest paid from april 2012 to march-2015 ?

In the income tax FAQ it states

a) Where the property is acquired or
constructed with capital borrowed on or after
1.4.1999 and such acquisition or construction
is completed within 3 years of the end of the
financial year in which the capital was borrowed.

Can some one help me with the date considered for borrowed capital (is it the first disbursement or last disbursement or starting date of repayment) ?

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3 Replies

Nraju (Vacant) (65 Points)
Replied 19 January 2015

Equated Monthly Installment refers to the monthly payment you make on your home loan. Though it is an unequal combination of interest payment and principal repayment, the total monthly amount is calculated in such a way that it remains constant all through the repayment tenure. EMI begins when the loan is fully disbursed. That means, once your home loan company makes the entire loan payment, you begin repayment.

PRE-EMI INTEREST IS THE INTEREST CHARGED BY THE BANK ON THE LOAN PROVIDED TO YOU FOR THE PERIOD OF DISBURSEMENT OF LOAN AND STARTING OF EMI.

kathir (MBA) (29 Points)
Replied 20 January 2015

Thanks Nagaraju. I'm aware of the difference between preEMI & EMI.

I would like to know from when 3 years period starts for completing the house construction, this is one of the condition to avail pre-contruction interest benefits. Please advice.

Nraju (Vacant) (65 Points)
Replied 20 January 2015

The rebate is available from the financial year in which you have taken the possession of the property. All the interest paid in that financial year can be claimed. Any interest paid in the previous financial years has to be pro-rated in next 5 years at 20% [1/5th] each year. The rebate is for combined amount and there is no additional rebate for pro-rated amount.

For example, you have begun payments from say Oct 2013. You have taken possession of the house in Dec 2014.

You can claim rebate from the financial year April 2014 to March 2015.

The interest payments made from April 2014 to Dec 2014 and up to March 2015 can be included for rebate.
Additionally the 20% of the interest payments of Oct 2013 to March 2014 can be claimed.
Note the total limit is same. So if you are exceeding the exemption limit by utilizing the interest payments from April 2014 to March 2015, your 20% of pervious will go unclaimed.
Same rule applies next year i.e. for financial year April 2015 to March 2016, you can additionally add 20% of Oct 2013 to March 2014 interest within the same limits.

The principal paid if any in the period Oct 2013 to March 2014 cannot be claimed in any year.