pre-construction period

For which AY the property income is neede

For A/Y 2010-11 ..

and the ans. is ...     (200)

Prior Period Int  Loan I

1.11.2002  - 31.3.2003  300000*18%*5/12 = 22500

1.4.2003 - 31.3.2004     300000*18%   =   54000

1.4.2004 -  31.3.2005    300000*18%=    54000

1.4.2005-30.11.2005    300000*18%*8/12 = 36000 ( I loan would be repayed using second loan+cash)

Prior Period Int  Loan II

1.12.2005 - 31.3.2006  200000*15%*4/12                   10000

Total Prior Period Int                                                      176500

For AY 2010-11 1/5th  interest Rs35300 (1/5*176500) will be allowed.

Assuming the second loan was not squared up, 200000*15% = 30000 will be allowed.

Total Interest u/s 24 that will be allowed is 35300+30000=65300

If the property is self-occupied then the income from house property will be (65300)

Nishie...I think im right.. anybody pls correct me if im WRONG....

Dear Balakrishnan,

In this question if u assume this house to be self occupied then Deduction on account of interest cannot exceed 30,000 because construction has not completed within 3 years from the end of the FY in which loan was borrowed(first loan).

Is the second loan taken to repay first loan within the preconstruction period is allowable to deduction in 5 equal instalments ?And also i had a doubt regarding the completion of preconstrution period for second loan.I think it would be nov 06.pls suggest me regarding this.thanks in advance.

Dear Sameera,

I don't think there is any problem if second loan is taken to pay off the first one b4 the completion of construction. (aggregate of interest on both loan will be considered as total interest of pre construction period)

The pre construction period will start from the date of first loan till the end of the FY preceeding the year in which construction is completed. i:e in present question it is 01/11/2002 to 31/03/2006

Thanks for correcting me Dear Amir, Pls clarify me in this regard too....U/s 24, where it is specifically stated that if the construction was not completed within the 3 yrs period only Rs.30000/- will be allowed as deduction...

hey forget to add it was a let out property ...

n thank u guyz for the help ...

Dear Balakrishnan,

I am attaching below the clauses of Sec 24 for ur query.

The lines marked in yellow is the proviso and the lines in red is the time limit which we are talking about. U can see, the second proivisio supports the first proviso telling that the if the property talking about in the 1st proviso satisfies certain conditions then deduction is 1,50,000. So if those condition are not satisfied then 1st proviso stands good and so if its not completed within 3 yrs of loan taken, then 30,000 can only e deducted. 

24. Income chargeable under the head “Income from house property” shall be computed after making the following deductions, namely:—

          (a)  a sum equal to thirty per cent of the annual value;

          (b)  where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital:

                Provided that in respect of property referred to in sub-section (2) of section 23, the amount of deduction shall not exceed thirty thousand rupees :

                Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed ²⁴[within three years from the end of the financial year in which capital was borrowed], the amount of deduction under this clause shall not exceed one lakh fifty thousand rupees.

Explanation.—Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:]

                ²⁵[Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the purpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan.

                Explanation.—For the purposes of this proviso, the expression “new loan” means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital.]

Nisihie provide additional details regarding the MV, FV and rent..

no additional details mentioned .