Mumbai-based Rahul Saraf purchased a home in March 2024 with a home loan of ₹50 lakh and he is living in it. The total pre-construction interest paid was ₹5 lakh. According to Section 24(b), Rahul must claim it in five equal installments of ₹1 lakh each over five years, starting from possession. In the first year, his regular annual interest was ₹1.5 lakh. Since the combined limit is ₹2 lakh, only ₹0.5 lakh of pre-construction interest can be claimed. ‘
How the deduction of pre-construction interest works
Pre-construction interest refers to the interest paid from the date a home loan is disbursed until March 31 of the year preceding the year in which construction is completed or possession is received.
“The Income Tax Act does not allow this entire amount to be claimed at once; instead, it dictates a structured approach: the total accrued interest is to be divided into five equal installments, and each installment can be claimed over five successive financial years starting from the year the property is completed or handed over,” says Pramod Kathuria, founder and CEO, Easiloan.
The rule works on a full-year basis, not a monthly one. This means the taxpayer must claim one complete installment of pre-construction interest for that financial year, no matter when the possession happens.
The taxpayer is entitled to claim one full fifth of the total pre-construction interest for that entire financial year, in addition to the regular interest for that year. “This creates an orderly and consistent way of claiming the benefit without having to calculate monthly breakups,” says Kathuria.
Understanding the combined interest limit
The ₹2 lakh limit under Section 24(b) for properties that are self-occupied covers both regular annual interest and the one-fifth pre-construction interest. “Since it’s a fixed cap amount, taxpayers must first account for the current year’s steady interest, then harness any space left for the one-fifth pre-construction installment. This warrants optimal compliance, avoids any kind of overclaiming, and upholds a clean, defendable tax position,” says Monga.
Both amounts must be added together and then capped at ₹2 lakh.
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When the combined figure exceeds the limit, tax experts generally advise prioritising the regular annual interest first, because this component is specific to each year and cannot be carried forward.
“The one-fifth pre-construction installment is then claimed from whatever portion remains within the ₹2 lakh cap. If there is not enough room, the unclaimed part of that year’s pre-construction installment cannot be carried forward; it simply lapses,” says Raoul Kapoor, co-CEO, Andromeda Sales and Distribution.
For let-out or deemed-let-out properties, the ₹2 lakh cap does not apply in the same way: the full regular interest plus the one-fifth pre-construction interest is deductible, subject to the overall ‘set-off of losses from house property’ limits under current tax rules.
“In simple terms, if the property is self-occupied/vacant, there is a strict ₹2 lakh ceiling, so part of the 1/5th installment may be wasted. If the property is rented out, there is no ceiling on interest deduction; the full 1/5th installment is allowed, and any loss can be carried forward,” says Kapoor.
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How to fix a wrong Section 24(b) claim
If a homebuyer mistakenly claims the entire amount of pre-construction interest in the year of possession, the mistake must be corrected because it contravenes the five-year amortisation rule under Section 24(b).
Therefore, in this case, they must file a revised ITR for that particular assessment year before the statutory deadline.
“The steps usually involve logging into the e-filing portal and selecting ‘Revised Return,’ correcting the deduction under Section 24 (b) to the qualified 1/5th amount, and then recomputing tax liability and paying off any variance in tax plus interest. Do remember to carefully store the documentation in case of future scrutiny,” says Atul Monga, CEO and co-founder, BASIC Home Loan.
Once the revised return is submitted within the allowed time limit, it substitutes the original return in its entirety. Generally, no additional documentation is required unless specifically requested by the tax authorities. The important thing is to ensure that the deduction is claimed strictly within the legally permissible limit and spread over the stipulated five years.