In India, housing loans have long been a cornerstone for individuals aspiring to own their dream homes. However, to truly utilize this financial instrument, it is essential to understand the concept behind Pre-EMI interest and the tax benefit of Pre-EMI interest. More so in 2024, where every bit of savings can count due to applicable tax benefits!
In this article we will discuss Pre-EMI interest under housing loan section, and how you can enjoy tax benefits from it.
What is Pre-EMI in Housing Loans?
Pre-EMI is the interest you pay on the loan disbursed by the bank while the property is being constructed. This is paid before actual EMIs (consisting of principal plus interest) starting on completion of construction.
For under-construction property purchase, the bank generally releases the loan in different stages of construction work. In this period, as the bank releases the part payment to the builder, you are only required to pay the interest part as Pre-EMI. Which leads to lower monthly cash-outflow compared to total EMI. Once construction is complete and the bank has disbursed the entire loan amount to the builder, you start paying regular EMI, including principal payment plus interest.
Tax Benefits on Pre-EMI for Home Loans in 2024
Now, let’s dive into how Pre-EMI can help you save on taxes.
Section 24(b) – Tax Deduction on Home Loan Interest
One of the most vital tax advantages related to house loans- Pre EMI, falls under section 24 (b) of the income tax act. How it works for Pre EMI interest.
- You can claim the interest paid during the Pre-EMI period as a deduction under Section 24(b), but only after the construction is complete.
- The Pre- EMI interest can be claimed u/s 24(b) as deduction in five equal installments starting from the year the construction is completed.
- For self-occupied properties the maximum deduction permitted is ₹ 2,00,000 per financial year. If the property is rented, there’s no limit to interest deduction.
For instance, if you have paid ₹5,00,000 as Pre-EMI interest over two years then you can claim ₹1,00,000 per year for five consecutive years after the construction of the property is complete subject to a maximum of ₹2,00,000 per annum.
Conditions for Claiming Pre-EMI Interest Deductions
In other to Qualify for Pre-EMI interest deductions u/s 24(b), the following conditions need to be satisfied:
A loan must be taken for the construction/purchase/ reconstruction of a property.
The construction of the property should be completed within five years from the end of the financial year in which the loan was sanctioned. If the building is completed after this, the maximum deduction allowable drops to Rs 30,000 per year.
You must own the property as long as you claim any tax benefits.
Section 80C – Deduction on Principal Repayment
While Section 24(b) deals with interest deductions, Section 80C allows you to claim tax benefits on the principal repayment of your home loan. Here are the key takeaways:
You can claim a deduction of up to ₹1,50,000 per financial year on the principal repayment under Section 80C.
However, you can only claim the pre-EMI interest deduction after construction is complete and start making your total EMI payments (including principal), as pre-EMI payments do not include any principal repayment.
Pre-EMI vs. Full EMI: What’s the Better Choice?
Choosing between Pre-EMI and Full EMI during the construction phase of your property is a critical financial decision. Let’s look at when each option makes sense:
- Opt for Pre-EMI if:
You want to reduce your monthly payments during the construction phase.
You expect to get possession soon and can handle higher EMIs once the property is handed over.
- Opt for Full EMI if:
You want to start repaying the principal immediately, which will help reduce the overall interest cost in the long term.
You prefer to begin maximizing your tax benefits from home loan interest deductions as soon as possible.
Ruloans’ Home Loan Advisors are equipped to help borrowers make informed decisions based on individual financial situations, ensuring optimal outcomes.
Final Words!
Pre-EMI interest on housing loans can be a powerful tool for tax savings in 2024. Understanding the tax deductions available under Section 24(b) and planning your home loan strategy can significantly reduce your financial burden. Whether you’re a borrower or a Home Loan DSA Agent working with Ruloans, these tax benefits offer a chance to achieve substantial savings.
At Ruloans, we’re dedicated to helping you navigate the complexities of home loans. With our extensive banking partnerships, cutting-edge digital solutions, and lucrative commission structures for DSAs, we make the process seamless. Whether you’re applying for a home loan through our network or looking to become a DSA, the journey starts with the Ruconnect App, where registration is simple, fast, and rewarding. Partner with Ruloans today and take the first step toward financial success!
