Under Section 24(b) of the Income Tax Act, homebuyers can claim a tax deduction on home loan interest. For self-occupied properties, the maximum deduction is capped at ₹2 lakh per year, and this includes the portion of pre-construction interest, which is allowed in five equal instalments starting from the year construction is completed.

What Is Pre-Construction Interest?

Pre-construction interest is the interest paid on your home loan from:

the date of the first loan disbursement,

up to

31 March of the financial year before construction completion or possession.

This interest cannot be claimed during the construction phase.

Key Rules for Claiming the Deduction

Claiming Period

You can claim the total accumulated pre-construction interest only after construction is completed, in five equal annual instalments.

Annual Limit (Self-Occupied Property)

Each annual installment (1/5th of the total pre-construction interest) is added to your current year’s home loan interest.

Together, they are subject to a maximum deduction of ₹2 lakh per year.

3 Mandatory Documentation

You must obtain an interest certificate from your bank or lender detailing:

total interest paid

principal paid

pre-construction interest amount

4. Construction Completion Timeline

To claim the full ₹2 lakh deduction:

construction must be completed within 5 years from the end of the FY in which the loan was taken.

If delayed beyond 5 years →

Deduction drops to ₹30,000 per year for a self-occupied home.

5. Let-Out Property Rule

If the property is let out

No monetary limit on interest deduction under Section 24(b).

The full amount of interest paid (including pre-construction interest instalments) can be claimed.

6. Tax Regime Applicability

This deduction is available only under the Old Tax Regime.

Taxpayers under the New Tax Regime cannot claim home loan interest for a self-occupied property.

Conclusion

Claiming pre-construction interest can significantly reduce your tax burden — but only if you follow the rules carefully.

Remember, the benefit applies after construction completion, spreads over five years, and for self-occupied homes, all interest (current + pre-construction) must fit within the ₹2 lakh annual limit.

If you plan wisely, maintain proper records, and ensure timely project completion, pre-construction interest becomes a powerful tool to maximise tax savings and reduce the effective cost of your home loan.