The housing loan provides dual benefit to the taxpayers, first it acts as excellent tax saving tools and second, creation of long term assets. Further, the monthly instalment of the housing loan constitutes two components, principal and the interest components. The Principal paid each month is deducted under section 80C of the Act. Further, the interest paid can be of pre-construction/ acquisition period or post construction/ acquisition period. The interest paid post construction/ acquisition is deductible under section 24 of the Act, and is reduced directly from income upto Rs. 150,000 in case of self occupied property.

Interest of Pre-Construction Period – Interest payable by an assessee in respect of funds borrowed for the acquisition or construction of a house property and pertaining to a period prior to the previous year in which such property has been acquired or constructed, to the extent it is not allowed as a deduction under any other provision of the Act, will be deducted in five equal annual instalments, commencing from the previous year in which the house is acquired or constructed.

Pre-construction period is deductible in five equal annual instalments, commencing from the previous year in which the house is acquired or constructed.

“Pre- construction period” means the period commencing on the date of borrowing and ending March 31 immediately prior to the date of completion of construction/ date of acquisition or date of repayment of loan, whichever is earlier.