Home Loan Tax Benefits While Your House Is Under Construction: Interest, Pre-Construction Interest and Principal

Quick answer: While your house is being built, interest on the home loan is generally not claimed year by year. According to the Income Tax Department, interest for the pre-construction period is allowed in five equal yearly instalments from the year construction is completed, and for a self-occupied house the higher deduction depends on completing construction within five years from the end of the financial year the loan was taken. The deduction for self-occupied property is not available under the new tax regime. This is general information, not tax advice: confirm with a chartered accountant.

Not tax advice. This article summarises public guidance from the Income Tax Department as of 17 October 2026. Tax rules change, and your situation (loan type, ownership, tax regime, other income) matters. Please confirm with a chartered accountant before you file or make financial decisions.

Infraura is a builder, not a lender, and does not arrange loans or handle loan paperwork. Loan terms differ between lenders and change over time, so confirm the details of your own loan with your lender before you plan around them.

“Home loan under construction tax benefit” and “what is pre-construction interest” are among the most searched tax questions from people building their own homes. This guide explains, in plain words, what the Income Tax Department’s published guidance says, and why the speed of your construction matters for tax as well as cost.

First, a 2026 change in the law

The Income-tax Act, 2025 came into force on 1 April 2026 and replaced the Income-tax Act, 1961. The familiar labels “Section 24(b)” (interest) and “Section 80C” (principal) come from the 1961 Act. Many of the underlying rules carried over, but section numbers changed. We use the familiar names below because that is what most people search for; your CA will use the current references.

Interest: the pre-construction rule

The Income Tax Department’s guidance on self-occupied house property (accessed 17 October 2026) explains:

• Interest for the period before the house is acquired or constructed is allowed in five annual instalments, starting from the year in which the property is acquired or constructed.
• The pre-construction period runs from the date of borrowing to 31 March immediately before the year of completion (or the date the loan is repaid, if earlier).
• This applies to self-occupied, let-out and deemed let-out property.

In practice: you finish building, and from that year you start claiming one-fifth of the pre-construction interest each year, alongside interest for the current year, within the overall limit that applies to you.

The completion deadline and the deduction limit

For a self-occupied house, the same guidance says the higher deduction for interest (up to Rs. 2,00,000 in aggregate for up to two self-occupied properties) applies when, among other conditions:

• the loan was taken on or after 1 April 1999 for purchase or construction;
• the property is purchased or constructed within 5 years from the end of the financial year in which the loan was taken; and
• you have a certificate from the lender showing the interest payable.

Otherwise, a lower ceiling of Rs. 30,000 applies, which is also the ceiling for loans taken for repair, renovation or reconstruction of a self-occupied house. The department’s house property summary lists the same conditions.

Old regime vs new regime

The Income Tax Department’s FAQ on the new and old regimes (July 2024, accessed 17 October 2026) states that interest on borrowed capital for a self-occupied property is not allowed as a deduction under the new tax regime. To claim it, a taxpayer has to opt for the old regime when filing. Which regime suits you depends on your full income picture, so this is a question for your CA.

Principal repayment (the “80C” deduction)

Under the old Act, repayment of the principal on a housing loan has been one of the items eligible under Section 80C, within that section’s overall limit and conditions, and under the old regime. Timing and conditions matter for a house under construction, so ask your CA how principal repaid during and after construction is treated under the current law.

Why finishing on time matters for tax too

Two of the rules above depend on completion: pre-construction interest starts only once the house is complete, and the higher interest deduction for a self-occupied home depends on completing within the time limit. A build that drags on delays your benefit and, in a worst case, can reduce it. That makes a realistic schedule and a well-run site part of your tax planning.

• Plan the whole build before you start. Ask your builder for a stage-wise work schedule and track it. See our construction services.
• Decide interiors early. Late interior changes are a common cause of delay, so settle interior plans before finishing starts. See our turnkey interiors page.
• Track progress independently. If you use your own contractor, a project management consultant can watch the schedule and flag slippage early.

Our article on why construction projects run late and over budget covers the usual causes and fixes, and how a house is built, step by step explains the sequence.

Keep these records

• Interest certificates from your lender for every year, including the construction years.
• Your loan sanction letter and disbursement details.
• Evidence of the completion date of construction, such as the completion certificate.
• Invoices and receipts for construction payments.

Hand these to your CA. They will work out what you can claim, under which regime, and in which year.

Frequently asked questions

Can I claim home loan interest while my house is still under construction?

According to the Income Tax Department's guidance, interest for the period before the house is acquired or constructed is not claimed year by year during construction. It is allowed in five equal annual instalments starting from the year the construction is completed. Confirm your own case with a CA.

What is pre-construction interest?

It is interest on the home loan for the period from the date of borrowing up to 31 March before the year in which construction is completed. The Income Tax Department allows it in five equal yearly instalments from the year of completion.

Is there a deadline to complete construction?

For a self-occupied house, the higher interest deduction described by the Income Tax Department requires the purchase or construction to be completed within five years from the end of the financial year in which the loan was taken. Otherwise a lower ceiling applies. Check current rules with a CA.

Can I claim home loan interest under the new tax regime?

The Income Tax Department's FAQ says interest on borrowed capital for a self-occupied property is not allowed as a deduction under the new regime; you would have to opt for the old regime. Ask a CA which regime suits you.

Did the section numbers change in 2026?

Yes. The Income-tax Act, 2025 replaced the Income-tax Act, 1961 from 1 April 2026, so familiar references like 24(b) and 80C come from the old Act. The substance of many rules carried over, but ask your CA for the current section references when filing.

Does a construction delay affect my tax benefit?

It can. If construction is not completed within the time limit in the rules, the deduction for interest on a self-occupied house may be restricted. A realistic schedule and a well-run site protect more than your budget.

Talk to Infraura

Have a question about your project? Speak to our team in Coimbatore. We will explain the options plainly and give you a written scope.

• Call / WhatsApp: +91 96771 71707
• Email: support@infraura.com
• Visit: No:1499, Trichy Road, Coimbatore 641018
• Hours: Monday to Saturday, 10 AM to 7 PM

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