East Bengaluru buyer answers
Can I claim home loan interest paid before possession?
Direct answer: Yes, but not in the years you paid it. Section 22(1)(c) of the Income-tax Act, 2025 lets interest for the period before the tax year in which the home is acquired or constructed be claimed in five equal instalments, starting that year. For a self-occupied home, caps and your tax regime decide how much you actually get.
Disclosure: acre&key’s advice is free to buyers; we are an authorised sales partner for some projects and may be paid by the developer.
Verify with your CA and lawyer: This page quotes the Income-tax Act, 2025 as published in the Gazette of India on 21 August 2025. It isn't tax or legal advice, and later amendments by a Finance Act were not checked for this page. Your CA should confirm what you can claim, in which year and under which regime, before you file.
If you bought an under-construction flat on a home loan, you have probably paid interest on the amounts disbursed for a year or two, sometimes longer, before getting the keys. Your loan statement shows exactly how much. The common worry is that this money is simply lost for tax. It isn't, but the Act handles it in a particular way, and the details are easy to get wrong.
The Income-tax Act, 2025 came into force on 1 April 2026 and uses a single "tax year" in place of the old assessment year and previous year. It defines the tax year as "the twelve months period of the financial year commencing on the 1st April." Everything below uses that term.
What does the Act actually say?
The deductions from income from house property are in section 22. Two clauses deal with interest on a home loan. Clause (b) allows, where the property "has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, the amount of any interest payable on such capital". That is the interest for the current tax year.
Clause (c) is the one for pre-construction interest. It applies "where the capital referred to in clause (b) is borrowed during any period prior to the tax year in which the property has been acquired or constructed". In that case the interest payable for that earlier period is allowed "in five equal instalments for the said tax year and for each of the four immediately succeeding tax years."
So the interest you paid during construction is added up and spread over five tax years, beginning with the tax year in which the property is acquired or constructed.
Section 22(3) adds one more rule: the clause (c) amount is worked out "after reducing the interest referred to in the said section by any amount already allowed as a deduction under any other provisions of this Act." Interest can't be claimed twice.
How do the five instalments work?
Here is the arithmetic with example numbers. They show the method only and aren't figures for any loan or project.
Example (illustration only): interest of ₹1,50,000 was payable on your loan in the tax years before the year the flat counts as acquired or constructed. One fifth of that is ₹30,000. You would claim ₹30,000 under clause (c) in that year and in each of the next four tax years. The interest for the current year itself is claimed separately under clause (b).
Keep a simple table each year with the prior-period total, the instalment, and how many of the five you have used. You will need it for five returns in a row, and you may change CA in between.
When does the "prior period" end for a flat bought from a builder?
The Act ties the cut-off to "the tax year in which the property has been acquired or constructed". It doesn't use the word possession, and it doesn't say which document marks that point for a flat bought from a builder: the occupancy certificate, the possession letter, or the registered sale deed.
One more clause matters here. Section 25 says that for these sections the "owner" includes "a person who is allowed to take or retain possession of any building or part thereof in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882". Whether that applies to your purchase is a legal question. Bring your possession letter, the occupancy certificate and the sale deed to your CA, and let them fix the year with you.
If the OC or the sale deed is delayed, the year can shift. Our pages on why the OC and CC matter and when the builder must execute the conveyance deed explain those documents.
What caps apply to a self-occupied home?
Section 21(6) says the annual value of a house "shall be taken as nil, if the owner occupies it for his own residence or cannot actually occupy it due to any reason." Under section 21(7) that applies "only in respect of two of such houses as specified by the assessee", and not if the house is actually let during the year or the owner derives any other benefit from it.
For houses covered by section 21(6), section 22(2) caps the deduction under clause (b) at ₹2,00,000, subject to two conditions:
- the property was acquired or constructed with borrowed capital and the acquisition or construction "is completed within five years from the end of tax year in which capital was borrowed";
- you furnish "a certificate from the person to whom interest is payable on such capital".
In any other case the cap is ₹30,000. Section 22(5) says the aggregate deduction under sub-section (2) for such properties "shall not exceed ₹ 200000", even if you own two of them.
The text of section 22(2) applies the cap to the clause (b) deduction. Whether your clause (c) instalments sit inside the same ₹2 lakh for a self-occupied home is a point to settle with your CA before you file.
Thinking of prepaying the loan? EMI vs prepayment looks at that choice.
What if construction takes more than five years?
This is where a delayed project can cost you. The ₹2,00,000 cap for a self-occupied home applies only if acquisition or construction is completed within five years from the end of the tax year in which you borrowed. If not, the cap drops to ₹30,000.
Count the five years from the end of the tax year of your first disbursement, not from the builder's promised date. If your project has been extended on RERA, check the new date against that window. Our pages on what a RERA extension means for buyers and who bears the EMI interest when a project is delayed cover the delay side.
Does the new tax regime allow it?
Section 202 sets the new tax regime for individuals. It applies "unless the person exercises the option in the manner provided under sub-section (4)". Under it, total income is computed without a list of deductions, and that list includes "section 22(1)(b), in respect of properties referred to in section 21(6)". It is also computed without set-off of "any loss under the head “Income from house property” with any other head of income".
So for a self-occupied home under the new regime, the current-year interest deduction under clause (b) isn't available. The list names clause (b); it doesn't name clause (c). How your prior-period instalments are treated under the regime you choose is a question to put to your CA with your numbers. If the deduction matters to you, the choice of regime is the first conversation, before you count instalments.
What about a flat you let out?
The caps in section 22(2) are written for properties covered by section 21(6), the self-occupied ones. For a let-out flat, section 22(1)(a) also allows 30% of the annual value, and clauses (b) and (c) apply to the interest. Losses from house property, and how far they can be set off, have their own rules, and the new regime blocks set-off against other heads. Ask your CA to run both regimes on your actual rent and interest.
What paperwork should I keep?
- The lender's interest certificate. Section 22(4) says the certificate must specify "the amount of interest payable on capital borrowed" and the interest on any new loan taken to repay it.
- The disbursement schedule and loan statement, showing when each tranche went to the builder and the interest charged on it.
- Your payment receipts and demand letters from the builder. Our page on how an under-construction home loan is disbursed explains how these line up.
- The OC, possession letter and sale deed, so your CA can fix the year the property counts as acquired or constructed.
- Your five-year instalment table, carried from one return to the next.
If you borrowed from a lender outside India, section 22(6) disallows interest payable outside India if tax hasn't been paid or deducted on it and there is no agent in India. Mention that to your CA up front.
For the other taxes and charges around the purchase, see our pages on TDS when you buy a flat and costs of a flat beyond the base price.
Frequently asked questions
Can I claim home loan interest during construction every year?
No. Under section 22(1)(c) of the Income-tax Act, 2025, interest for the period before the tax year in which the property is acquired or constructed is claimed in five equal instalments, starting that year, not in the years it was paid.
What is the limit on home loan interest for a self-occupied house?
Section 22(2) caps the clause (b) interest deduction at ₹2,00,000 for self-occupied houses if construction is completed within five years and you have the lender's certificate, and at ₹30,000 otherwise. The total for such houses can't exceed ₹2,00,000.
What happens if my builder delays beyond five years?
The ₹2,00,000 cap applies only if acquisition or construction is completed within five years from the end of the tax year in which the loan was taken. After that, the cap for a self-occupied home falls to ₹30,000.
Can I claim home loan interest under the new tax regime?
For a self-occupied home, section 202 computes income without the section 22(1)(b) interest deduction. The list doesn't name clause (c), so ask your CA how your pre-construction instalments are treated under the regime you choose.
Does possession date decide when the five instalments start?
The Act uses the tax year in which the property is acquired or constructed, not the word possession. Your CA should fix that year using your OC, possession letter and sale deed.
References
- The Income-tax Act, 2025 (No. 30 of 2025), Gazette of India Extraordinary, Part II, Section 1, 21 August 2025 (CG-DL-E-22082025-265620), sections 1, 3, 20 to 25 and 202 (official Gazette copy hosted on a Government of India court website): https://thc.nic.in/Central%20Governmental%20Acts/Income%20Tax%20Act,%202025.pdf, accessed 17 Oct 2026
- Press Information Bureau, "The Income Tax Act, 2025" explainer (effective date and tax-year concept): https://static.pib.gov.in/WriteReadData/specificdocs/documents/2025/sep/doc202593626601.pdf, accessed 17 Oct 2026
- Karnataka RERA project search (to check a project's registration and completion dates): https://rera.karnataka.gov.in/, accessed 17 Oct 2026
This page explains public rules and processes. It isn't financial, tax or legal advice. acre&key gives buyers advice for free. We are an authorised sales partner for some projects and may be paid by the developer.