What is pre construction interest?

When I was constructing my residential building, I came across this term. Then I consulted one of my lawyer friends and he advised me about that. It is basically the interest that you have to pay while the construction is going on. So let me guide you more about what is pre construction interest.

What is the meaning of the pre-construction interest?

You have to pay the pre-construction interest while the residential building is being constructed.

When your property is being built, the interest on the mortgage cannot be deducted. Only after the building is complete, you may recover this pre-construction interest. Pre-construction refers to the time between the date a loan was obtained and March 31 of the year. It comes right before the year the property is fully completed.

What are the different interest deductions?

There are two types of interest-related deductions:

• Interest relating to the time before building

• interest in the years following construction.

Interest from the corresponding year is what is referred to as the post-construction period interest. It is the year for which income is being calculated.

Pre-construction time is defined as the period starting on the date the loan was repaid and ending on the early phase of the following:

• The loan's repayment date

• Or March 31st, the day before the construction or purchase of the property is finished.

Beginning with the year the residential property is purchased or built. The interest related to the pre-construction period may be deducted in a total of 5 yearly instalments.

Therefore, pre-construction period interest = the sum of the pre-construction period divided by 5.

How is interest from the pre-construction period taxed?

You must pay the interest in 5 equal payments over the span of 5 fiscal years prior to construction. You must begin it with the year the buying or building is finished. If you use the loan for renovations, restoration, or redevelopment, this deduction is not permitted.

Now you know about the pre construction interest concept.