Published 26 October 2026
A buyer of a flat under construction starts paying interest on the first disbursement and may wait three or four years for the keys. No deduction is available in those years, because there is no house yet whose income can be computed. The interest is not lost. It is collected and deducted in five equal parts from the year the house is completed. For a self-occupied house, though, those parts share the same Rs 2 lakh cap as the current year’s interest. In practice a large part of the pre-construction interest on a self-occupied house often goes unused. This guide explains the rule under both Acts, a change made by the Finance Act, 2026, and two points where the 2025 Act’s text differs from the 1961 Act.
Which Act governs which year
- Financial year 2025-26 (assessment year 2026-27) and earlier. The rule is the Explanation to section 24(b) of the Income-tax Act, 1961.
- Tax year 2026-27 onwards. The rule is section 22(1)(c) of the Income-tax Act, 2025, with section 22(3) against double deduction. The cap in section 22(2) was amended by the Finance Act, 2026 with effect from 1 April 2026.
- Instalments that straddle 1 April 2026. A house completed in, say, FY 2024-25 has its five instalments in FY 2024-25 and 2025-26 under the 1961 Act, and in tax years 2026-27 to 2028-29 under the 2025 Act. The 2025 Act has no special transitional rule for this. None is needed on the text:
- section 22(1)(c) counts “the said tax year and … each of the four immediately succeeding tax years”;
- “tax year” in section 3 is simply the financial year beginning on 1 April; and
- section 536(2) itself speaks of tax years “beginning before the 1st April, 2026”.
What the text says
The Explanation to section 24(b) reads:
“Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years.”
Section 22(1)(c) of the 2025 Act allows “the amount of any interest payable for the said prior period in five equal instalments for the said tax year and for each of the four immediately succeeding tax years”. Section 22(3) carries over the reduction for amounts allowed elsewhere.
Four things follow:
- The pre-construction period runs from the date the capital was borrowed to 31 March before the year of acquisition or completion. Interest for the year of completion itself is current interest, deducted in full under the ordinary rule.
- The deduction starts in the year of completion, not the year of registration or the year the loan ends.
- The five instalments are equal. The amount cannot be front-loaded or postponed.
- Interest already deducted elsewhere is excluded. Any pre-construction interest already allowed under another provision of the Act is taken out first.
The provision applies only to property “acquired or constructed”. A loan for repairs or renewal of an existing house has no pre-construction period.
The cap on a self-occupied house
Under the 1961 Act the Explanation says the instalment “shall be deducted under this clause”, that is, under section 24(b). The provisos cap “the aggregate of the amounts of deduction under this clause” for a self-occupied house. So the instalment and the current year’s interest share one cap of Rs 2,00,000, or Rs 30,000 where the conditions for the higher figure are not met. Whatever exceeds the cap is lost; nothing is carried to a later year.
Under the 2025 Act as enacted, section 22(2) capped only “the aggregate amount of deduction under sub-section (1)(b)”. Pre-construction interest is in clause (c), so the text as passed left it outside the cap for a self-occupied house. Section 38 of the Finance Act, 2026 substituted “sub-section (1)(b) and (c)”, with effect from 1 April 2026. The cap therefore applies to both from the first tax year under the 2025 Act, as it did under the 1961 Act.
The five-year test. The Rs 2,00,000 figure needs completion “within five years from the end of the financial year in which capital was borrowed” (second proviso to s.24(b); s.22(2)(a)(i) uses “tax year”). A loan first drawn in FY 2020-21 needs completion by 31 March 2026. Where several disbursements spread over years, the provisions do not say which borrowing starts the clock. The cautious reading takes the first. Missing the date leaves the self-occupied claim, instalments included, at Rs 30,000 a year.
A let-out house: no cap
For a house let out after completion, the caps do not apply, and the instalments and current interest are deducted in full. In Padmanaban Sukhumaran v ACIT (ITAT Bangalore, 9 October 2025, ITA No. 950/Bang/2025, AY 2017-18), the assessee took a loan of Rs 1.70 crore from ICICI Bank on 22 November 2011 for a flat at Uttarahalli, Bangalore. The pre-construction period ran to 31 March 2016, with pre-construction interest of Rs 62,87,945. For AY 2017-18 he claimed Rs 17,44,496: current interest of Rs 5,15,894 plus one-fifth of the pre-construction interest. The flat was let for ten months, and he offered the rent. His return gave the address of the flat he lived in instead, and the Assessing Officer disallowed the claim for want of proof against that address. The Tribunal held the claim was genuine and that only the address was wrong. It allowed the appeal, subject to the Assessing Officer verifying the figures. The order is on BharatTax case law. It shows the scale the instalments can reach once the cap is out of the way. The resulting loss is then subject to the Rs 2,00,000 limit on set-off against other heads (s.71(3A); s.109(1)(b)).
A worked example
A loan for an under-construction flat is first disbursed in June 2022 (FY 2022-23). Possession is in November 2025 (FY 2025-26). Interest payable:
| Year | Interest | Treatment |
|---|---|---|
| FY 2022-23 | Rs 1,80,000 | pre-construction |
| FY 2023-24 | Rs 2,40,000 | pre-construction |
| FY 2024-25 | Rs 2,40,000 | pre-construction |
| FY 2025-26 | Rs 2,30,000 | current |
Pre-construction interest totals Rs 6,60,000. The instalment is Rs 1,32,000 a year, for FY 2025-26 (AY 2026-27, 1961 Act) and tax years 2026-27 to 2029-30 (2025 Act). Completion is within five years of 31 March 2023. For FY 2025-26:
| Self-occupied | Let out | |
|---|---|---|
| Current interest | 2,30,000 | 2,30,000 |
| Pre-construction instalment | 1,32,000 | 1,32,000 |
| Total interest | 3,62,000 | 3,62,000 |
| Allowed | 2,00,000 | 3,62,000 |
| Lost | 1,62,000 | nil |
In the self-occupied case, the instalment adds nothing once current interest alone exceeds Rs 2,00,000. The instalment helps a self-occupied owner only in years when current interest is below the cap.
The new regime
Under the 1961 Act, the new regime denies “clause (b) of section 24” for a self-occupied house (s.115BAC(2)(i)). The pre-construction instalment is deducted “under this clause”, so it goes too.
Under the 2025 Act, section 202(2)(a)(v) denies “section 22(1)(b), in respect of properties referred to in section 21(6)”. It does not mention section 22(1)(c). The Finance Act, 2026 added clause (c) to the cap in section 22(2) but did not amend section 202(2)(a)(v). Read literally, a self-occupied owner in the new regime may deduct the instalment, within the Rs 2,00,000 cap. The deduction would produce a loss, because the annual value is nil. A loss cannot be set off against another head in the new regime (s.202(2)(b)(ii)), so it is of use only against income from another house. This guide has found no CBDT clarification on the point. Whether the omission was intended is not known, and the Revenue may read the provision differently.
Selling the house later
The proviso to section 48(ii) of the 1961 Act, inserted by the Finance Act, 2023 from AY 2024-25, excludes from the cost of the house “the deductions claimed on the amount of interest under clause (b) of section 24”. Pre-construction instalments are deducted under that clause, so they are covered. The 2025 Act’s version, section 72(3)(a), bars “the interest claimed as deduction under section 22(1)(b) or under Chapter VIII”, and again does not mention clause (c). Interest that was never claimed, such as the part lost to the cap, is not caught by either provision. See Capital Gains on Selling Property.
What to have ready
- The loan account statement from the first disbursement, showing interest for each financial year.
- The lender’s certificate showing the pre-construction interest separately; a certificate is a condition of the Rs 2,00,000 figure.
- Evidence of the date of completion or possession: the possession letter, occupancy or completion certificate, or the registered deed for a ready house bought later.
- A schedule of the total pre-construction interest, the instalment and the years it runs, carried from return to return. The return does not carry it forward automatically.
- Any deduction already taken on the same interest under another provision, which reduces the amount to be spread.
Reporting and corrections
- Reporting. The instalment is added to current interest for the house in the return’s house property schedule. See Home-Loan Interest: Section 24(b) and the Rs 2 Lakh Cap for the rest of the claim.
- Due date and verification. As for any return; see Belated and Revised Returns and E-Verifying a Return.
- Corrections. An instalment omitted or miscalculated is corrected by a revised return within the time allowed. An updated return cannot be used to claim a deduction.
The site’s article on pre-construction interest gives a longer example. It places the five-year condition in the “third proviso”; it is the second.
In order
- Total the interest from the first borrowing to 31 March before the year of completion, less anything already deducted under another provision.
- Divide by five, and deduct one part in the year of completion and in each of the next four years.
- For a self-occupied house, add the part to current interest and apply one cap: Rs 2,00,000 if the house was completed within five years and the certificate is held, otherwise Rs 30,000.
- For a let-out house, deduct the part and current interest in full, and apply the Rs 2,00,000 set-off limit to any loss.
- Carry the schedule forward each year, across the change of Act on 1 April 2026.
The next guide, Joint Owners and Joint Home Loans, explains how co-owners divide the interest and each claim a cap.