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Ujaas The Condoville
 

Example One

X takes a loan of Rs 40,000 @ 15% p.a. for constructing a house on June 11, 2000. Construction of the house is completed on January 20, 2006. Date of repayment of loan is (a) January 31, 2010, or (b) June 30 2007, (c) October 31, 2003.

If date of repayment of loan is January 31, 2010 or June 30, 2007 then pre-construction period ends on March 31, 2005 (being March 31 immediately prior to the date of completion of construction/acquisition). Interest on Rs 40,000 @ 15% p.a. from June 1, 2000 to March 31, 2005 is Rs 28,997. Amount of installment deductible in first five years is Rs 5,799 (i.e. Rs 28,997/5).

 

   Home finance
Your guide to taxes
Example one
Example two
Example three
Example four
Example five
Example six
If date of repayment of loan is October 31, 2003, then pre-construction period ends on October 31, 2003 (being March 31 immediately prior to completion of construction or date of repayment of loan, whichever is earlier). Interest on Rs 40,000 @ 15% p.a. from June 1, 2000 to October 31, 2003 comes to Rs 20,500 (instalment deductible in first 5 previous years being Rs 4,100). The table given below highlights interest deductible in different previous years:

 

Computation of Tax
 

Previous years

Ending on
March 31, 2006

2006-07 2007-08 2008-09 2009-10 2010-11 2011-12

Rs

 Rs Rs Rs Rs Rs Rs
If date of repayment of loan is January 31, 2010:
Current year’s interest 6,000* 6,000 6,000 6,000 6,000 5,014 Nil
Pre-construction period’s interest 5,779 5,779 5,779 5,779 5,779 Nil Nil
Total deduction 11,779 11,779 11,779 11,779 11,779 5,014 Nil
If date of repayment of loan is June 30, 2007:
Current year’s interest 6,000* 6,000 1,479 Nil Nil Nil Nil
Pre-construction period’s interest 5,779 5,779 5,779 5,779 5,779 Nil Nil
Total deduction 11,779 11,779 7,278 5,779 5,779 Nil Nil
If date of repayment of loan is October 31, 2003:
Current year’s interest Nil Nil Nil Nil Nil Nil Nil
Pre-construction period’s interest 4,098 4,098 4,098 4,098 4,098 Nil Nil
Total deduction 4,098 4,098 4,098 4,098 4,098 Nil Nil


*Although the construction of the property is completed on January 20, 2006 (i.e. during 2005-06, the interest of the entire financial year 2005-06 is treated as current years interest. Interest prior to the year 2005-06 (i.e. the year in which construction is completed) is pre-construction period’s interest. The same rule is applicable if the construction is completed on March 31,