Housing loan or Mortgage has become a everyday reality in our lives and the indispensable part of any housing loan is Equated Monthly Installments (EMI) , that is the montly instalment that we would need to pay to clear off the loan .
Then what is Pre EMI ?, well , in case of a house under construction , the disbursal of the loan amount to the builder by the bank would be in stages , that is, a certain percentage of the loan amount would be paid when the foundation is completed , and a further more when the roof of the house is ready and so on .
It is only when the entire amount is disbursed and the house is possesed by the borrower that , EMIs would start off and each EMI would contain a part towards interest payment and a part towards principal payment .
During the initial phases,when percentages is being disbursed by the banks and house is still not complete and possesed by the borrower yet, the borrower may be asked by the banks to start making payments towards the amount disbursed , mainly towards the interest of the amount disbursed . And this constitutes a pre EMI.
We know that Interest and the Principal amount repaid as part of EMI are tax deductibles to the tune of Rs.1 Lakh of Principal under section 80C and either Rs.1.5 Lakh for self occupied house and without Limit for a rented out house under section 24 of the Income Tax act
Where does pre EMI fit in , well , to claim tax deductions for the pre EMI, the entire pre EMI amount needs to be devided into 5 equal parts and would need to be clubbed with the Interest paid for next five years , but please do note that , it cannot exceed the Rs.1.5 Lakhs limit for a self occupied property.
Image : FreeDigitalPhotos.net,Photographer: Filomena Scalise
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