Budget 2026 Clarifies Pre Construction Interest Rules

Context Behind Budget 2026 Clarification

Homebuyers who take loans for under-construction properties often face uncertainty around tax benefits on interest paid before possession. Budget 2026 has provided clearer guidance on how pre-construction interest should be treated under the income tax framework, helping buyers plan their finances more accurately.

What Is Pre Construction Interest

Pre-construction interest refers to the interest paid on a home loan during the period between loan disbursement and completion of construction. The article explains that during this phase, buyers typically pay EMIs or interest-only amounts without being eligible for immediate tax deductions.

Tax Treatment After Possession

Budget 2026 reiterates that pre-construction interest cannot be claimed in the year it is paid. Instead, once the property is completed and possession is taken, the accumulated interest can be claimed in five equal annual instalments starting from the year of possession.

Annual Deduction Limits

The article clarifies that the total interest deduction, including current-year interest and pre-construction interest instalments, remains subject to existing limits. For self-occupied properties, the maximum deduction is capped, meaning buyers must account for annual ceilings while planning tax savings.

Importance Of Completion Timelines

Completion timelines play a critical role in determining eligibility for interest deductions. The article highlights that if construction is delayed beyond the prescribed period, deduction limits may be lower, which can significantly affect tax benefits for buyers.

Impact On Under Construction Homebuyers

The clarification offers relief to buyers by confirming the continuity of existing rules rather than introducing new restrictions. By providing certainty, Budget 2026 enables better financial planning and expectation management for those servicing loans on under-construction homes.

Difference Between Self-Occupied And Let Out Properties

Tax treatment can vary depending on whether the property is self-occupied or let out. The article notes that while interest deduction limits apply more strictly to self-occupied homes, let-out properties follow a different framework, subject to income set-off rules.

Relevance Under New And Old Tax Regimes

The availability of interest deductions depends on the chosen tax regime. Under the new tax regime, many housing-related deductions are not available. The article emphasises that buyers must evaluate regime selection before factoring in pre-construction interest benefits.

Common Misconceptions Among Buyers

Many buyers assume pre-construction interest can be claimed immediately, which is incorrect. The clarification helps dispel this misconception and reinforces the importance of understanding timing-based eligibility for tax deductions.

Conclusion

Budget 2026 has brought clarity to the tax treatment of pre-construction interest on home loans for under-construction properties. By reaffirming existing provisions and outlining deduction timelines, it helps buyers make informed and compliant tax planning decisions.

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