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Meaning of pre-construction interest

Most people prefer to take a home loan while constructing their dream home. But the tax department doesn’t allow its deduction while the house is under construction. Pre-construction interest refers to that interest component of a loan which is paid before the place is ready-to-use.

What is the span of deduction?

For taxation purposes, the total pre-construction interest is divided into five equal parts. It is then allowed as deduction starting from the year in which the construction is complete. Taxpayer cannot choose the years in which he will avail the benefit since it is available for five consecutive years.

What is the maximum limit of deduction?

As per Section 24 of the Income Tax Act, 1961, the maximum deduction for the interest on housing loan is Rs 2 lakh for a financial year, in case the property is self-occupied. It includes both current and pre-construction interests.  If the property is under joint ownership, each owner gets the same limit and can claim it in their Income Tax Returns.

Example

Mr X took a home loan of Rs 10 lakh to initiate the construction of a house in Kolkata in January 2023. The interest amounted to Rs 10,000 per month, and the construction began in February 2023. He received the completion certificate of the same in May 2025.

It has been given out on rent beginning August 2025. What would be the tax treatment of the interest on the loan for the FY26?

Solution

Mr X can consider pre-construction interest from the period when the construction started. In the given case, the same began in February 2023, even though he got the loan in January 2023.

Further, he will only get the same till 31st March of 2025, i.e. 26 months. Since interest was Rs 10,000 per month, the total pre-construction interest was 26 * Rs 10,000, i.e. Rs 2.60 lakhs. Therefore, the maximum deduction is Rs 52,000 for five consecutive years.

Since the property is let out, he is eligible to claim deduction of the actual amount of interest paid on home loan without any maximum limit. He has paid 10,000 * 12, i.e. Rs 1.20 lakh as interest in FY26 and the pre-construction interest is Rs 52,000. The total deduction available is Rs 1.72 lakh for the FY26.

Uniqueness

This is achieved through the method of demographic and biometric deduplication. The deduplication process compares a resident’s demographic and biometric information with the records within the UIDAI database. Therefore, an individual must enroll for Aadhaar only once since multiple enrollment applications will be rejected.

Portability

Aadhaar gives nationwide portability since it can be authenticated online. This is critical as millions of Indians migrate from one state to a different state or from rural to urban areas.

Distinctive numbering

An aadhaar number is a unique number generated randomly, devoid of any intelligence. Any resident enrolling for Aadhaar has to provide demographic details and biometric information during the enrolment process. However, the Aadhaar enrolment process doesn’t capture information relating to caste, religion, health, income, etc. However, with the increased linking of Aadhaar with various organizations, Aadhaar has become more powerful than what it was five years ago.

Scalable technology architecture

The UID architecture is open and scalable. A resident’s data is stored centrally, and authentication is carried out online. The aadhaar authentication service is built to handle an average of hundred million authentications a day.

Aadhaar offers a unique opportunity for the Government to fund several social welfare schemes and streamline their welfare delivery mechanism. It also ensures transparency and good governance.

Aadhaar authentication deduplicates data, which helps generate substantial savings for the government exchequer. It also provides the Government with accurate data on beneficiaries and helps coordinate and optimize various schemes. All these activities lead to:

Curbing leakages through targeted delivery

Confirmation of beneficiaries is crucial before the service delivery. This stands to the benefit of the Government because of UIDAI’s authentication services. This helps reduce leakages and ensures that services are delivered to the intended beneficiaries only, including subsidized food and kerosene delivery to Public Distribution System (PDS) beneficiaries, Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) beneficiaries, etc.

Improving efficiency and efficacy

The Aadhaar platform provides accurate and transparent information about the service delivery mechanism that helps the Government improve disbursement systems and utilize scarce development funds more effectively and efficiently including better utilization of human resources.

The Aadhaar system also provides a powerful source for identity verification across the country. It eliminates the hassle of repeatedly providing supporting identity documents each time. In addition, the Aadhaar system has enabled mobility for millions of people who migrate from one part of the country to another with its easy updation process.

The Aadhaar number is a unique 12-digit random number issued by the Unique Identification Authority of India (“UIDAI”). It is issued to the Indian residents after completion of the procedure laid down by the UIDAI. It has become mandatory for every resident to enroll and obtain an Aadhaar number. The standard requirement to enroll for Aadhaar is to provide demographic and biometric information, which is generally free of cost or at nominal charges.

Aadhar number is a unique number provided to each resident. An enrolment application can only be filed once. The Aadhaar number can be verified online in a cost-efficient way. It is a unique way to eliminate duplicate and phony identities. It is also used as a primary identifier that helps roll out several Government welfare schemes and programs that include schemes like PDS, Sukanya Samriddhi Scheme etc.

The Aadhaar number does not discriminate people based on caste, income, health and geography. Therefore, the Aadhaar number can be used as proof of identity, but it does not confer any right of citizenship or domicile.

The concept of Aadhaar was introduced to strategize a policy tool for social integration, financial reforms, public sector delivery reforms, and promoting hassle-free, people-centric governance. It also helps in the economic integration of the underprivileged and weaker sections of society, thus promoting equality.