When can you claim tax benefits on home loan for under-construction property? Tax expert explains

If you have bought an under-construction home and have already started paying EMIs, do not assume you can immediately claim all available home loan tax benefits. The tax treatment varies depending on whether the deduction relates to principal payments or interest payments.

While loan repayments may begin before possession of the property, eligibility for tax deductions is subject to specific conditions under the Income-tax Act. Understanding these rules can help taxpayers avoid incorrect claims.

Principal repayment: EMI start date is not only factor

Nishant Shanker, Tax Controversy & Dispute Resolution, Navraj Global Advisors, said, “Buying an under-construction home means commencing EMIs before getting the home possession. Under the Income-tax Act, 2025, the answer depends on whether one is claiming the benefit for principal repayment or interest and whether the applicable conditions have been satisfied. For principal repayment, an important point is that merely starting repayment of the home loan does not automatically make every principal component immediately deductible. The deduction for eligible housing-loan principal repayment falls within the Rs. 1.5 lakh overall limit under Section 123 read with Schedule XV.”

He added, “For an under-construction property, the conditions relating to acquisition or completion of the residential house, therefore, need to be examined before claiming the deduction. A taxpayer should not assume that because the bank has begun recovering principal through EMIs, the entire principal paid during the construction period can automatically be claimed as a deduction. Hence, the completion /acquisition requirement is an important consideration.”

On home loan interest treatment, he said, “The treatment of home loan interest is different. Interest relating to the period before acquisition or completion is generally treated as pre-construction interest and can generally be claimed in five equal instalments, beginning from the year in which the property is acquired or construction is completed. Interest payable after the relevant acquisition/completion period is dealt with under the normal house property provisions. The amount of deduction can also depend on whether the property is self-occupied or let out.”

Pre-construction interest: Significance of keeping track of different kinds of interests

While paying attention to the pre-construction interest, the choice of the tax regime plays an important role.

On this, Nishant said, “Another important consideration is the choice of tax regime. The deductions available for housing loan principal repayment u/s 123 and the interest deduction for a self-occupied property need to be evaluated in the context of the applicable tax regime. Taxpayers opting for the new tax regime generally cannot claim several deductions available under the old regime. Therefore, for an under-construction property, starting EMIs is not the same as becoming immediately eligible for every home loan tax benefit. The taxpayer should separately track principal repayment, pre-construction interest and post-completion interest and determine the year in which each becomes eligible for deduction.”

Homebuyers should ensure they do not treat the first EMI date as the starting point for all tax benefits. Such a step can result in inaccurate tax filing. Furthermore, the acquisition or completion date, the nature of the payment made, property usage and the opted tax regime can all influence when a deduction becomes available.

Hence, taxpayers should maintain separate records of principal and interest, both pre-construction and post-completion interest and verify their eligibility for the relevant assessment year before claiming the benefit.

Disclaimer: This article is for general information only and should not be treated as tax or financial advice. Home-loan tax benefits depend on applicable rules, property status, acquisition or completion date and tax regime. Taxpayers should verify their eligibility and consult a qualified tax planner or financial adviser before claiming deductions.