- Tax benefits nil
- It suits people with no regular income
Installments paid to repay interest on house loans at the time of house under construction are called pre-EMIs. They precede the actual EMIs which are paid once the project is ready. The EMIs are paid to clear the principal loan amount and interest accrued on it.
Under the pre-EMI system, only interest on house loan is paid. The principal amount remains unaffected in this system. This facility is available for housing sector alone. As per the terms reached between the loaner and loanee the financier disburses the loan. At the time of construction of the house, the loanee should pay the interest in partial payments. Once the construction is ready, the loanee should revert to full EMI payment. While construction of the house, the loan burden on the loanee is not significant.
Once the house is ready for occupation, the loanee should make arrangements for paying EMIs and should have suitable income. For example a person availed loan for a period of 20 years. He opted for pre-EMI system and paid the loan in this system till the construction of the house is through. The construction of the house is completed in five years. Afterwards, the EMIs commenced for repayment of the loan for a period of 20 years. The loanee would not be able to get tax benefits under the pre-EMI method as he paid pre-EMI for five years and going to pay EMI for next 20 years. However, when the loanee opts for payment of EMIs, he is entitled to claim tax benefits for the interest paid on the housing loan.
