Start with the income head and the property date
For company premises whose income properly falls under the house-property head, section 22(1)(b) of the Income-tax Act, 2025 addresses interest payable on capital borrowed for specified property purposes. Section 22(1)(c) spreads eligible prior-period interest in five equal instalments beginning in the tax year of acquisition or construction. Identify the acquisition or construction year first. The five instalments are a deduction mechanism, independent of the timing of principal repayments.
Read the applicable text: Income Tax Department: Income-tax Act, 2025, sections 20, 22 and 536.
Build the borrowing-to-property trail
Trace drawdowns to acquisition or construction and distinguish interest from principal and fees. Split mixed-use financing on a supported basis. Keep the year-of-acquisition or construction interest under the applicable current-year provision and exclude it from the preceding-years pool. Section 22(3) requires the prior interest to be reduced by amounts already allowed as a deduction under other provisions of the 2025 Act. Where a pool spans repeal, test the savings rules and prior claims before using it.
Run a separate schedule for each qualifying property
Keep the original supported pool, the reduction for amounts already allowed, the five scheduled instalments and the amounts actually claimed. A completion date for one building does not start the schedule for a separate unfinished building. Any additional eligible pre-construction interest before the eventual construction year will affect that building’s final pool. Maintain evidence of when each property was acquired or constructed, including title or completion documents as applicable. The illustrations concern qualifying let premises and compute only the interest component. The caps in section 22(2) and (5) concern the residential properties described in section 21(6), not the let premises assumed here. For chargeable interest payable outside India, check the separate conditions in section 22(6). Classify any premises used in the company’s own taxable business separately under section 20.
Bridge the deduction to the house-property computation
Show the property result before and after allowable interest, then test any loss set-off independently. A deduction that produces a loss does not by itself establish relief against other heads. Reconcile capitalisation in the books with prior tax allowances and do not infer that an amount was allowed merely from its accounting treatment. Tax year 2026–27 under the 2025 Act is distinct from the FY 2025–26 return for AY 2026–27 under the 1961 Act.
Six worked illustrations
All facts and amounts are fictional. Calculations illustrate the stated assumptions, not a predetermined legal outcome.
Illustrative example 1: Single prior pool
Qualifying prior interest of ₹500,000 gives five instalments of ₹100,000. If allowable acquisition-year interest is ₹180,000, that year’s interest deduction component is ₹280,000.
Illustrative example 2: Strip out an earlier allowance
Assume the acquisition year and the relevant prior years are governed by the 2025 Act. Prior interest totals ₹650,000, of which ₹100,000 was already allowed under another provision of that Act. The net pool is ₹550,000 and each instalment ₹110,000.
Illustrative example 3: Separate current-year interest
A lender statement shows ₹440,000 for prior tax years and ₹160,000 for the acquisition tax year. With both amounts eligible and no prior allowance, the initial component is ₹248,000: ₹88,000 from the pool plus ₹160,000 current.
Illustrative example 4: Different completion dates
Buildings A and B have supported prior pools of ₹400,000 and ₹300,000. A is complete this year and B remains under construction. A starts with ₹80,000; B’s prospective ₹60,000 instalment does not start this year.
Illustrative example 5: Mixed borrowing
Documented use allocates 75% of ₹320,000 prior interest to the let property and 25% to another asset. The attributable pool is ₹240,000 and its instalment ₹48,000 before any other statutory adjustment.
Illustrative example 6: Track what remains scheduled
A ₹450,000 pool yields ₹90,000 per year. After three correctly used instalments, ₹270,000 has been used and ₹180,000 remains scheduled across the final two years.
Ten-step verification table
| Step | Action | Evidence |
|---|---|---|
| 1 | Confirm ownership and head of income | Title and use-of-property working. |
| 2 | Identify the financed purpose | Loan agreements and drawdown trail. |
| 3 | Fix acquisition or construction year | Conveyance or completion evidence. |
| 4 | Split interest by tax year | Lender certificates and interest statements. |
| 5 | Isolate the relevant prior-period balance | Property-level allocation worksheet. |
| 6 | Trace amounts already allowed | Earlier tax computations and orders. |
| 7 | Check repeal and savings where relevant | Year mapping and transition memo. |
| 8 | Calculate the five instalments | Original pool and year-by-year tracker. |
| 9 | Reconcile current interest and books | Ledger, annual value and tax bridge. |
| 10 | Test loss consequences separately | Head-wise computation and approval. |
Sixteen practitioner FAQs
1. Is the instalment calculated on principal?
No. It uses eligible interest for the relevant prior period.
2. When does the schedule start?
In the tax year of acquisition or construction.
3. Does first drawdown start instalments?
No. Verify acquisition or construction.
4. Are there five instalments after that first year?
The first year is included; there are four immediately succeeding years.
5. Does the same prior pool include interest of the acquisition year?
No. Evaluate that year’s interest separately.
6. Can two buildings use different starting years?
Yes. Establish each property’s facts independently.
7. Does the bank’s total interest prove the tax claim?
No. Trace the borrowing purpose and period.
8. Can the same interest be deducted under multiple heads?
Check subsection (3) and avoid duplicate allowance.
9. Does capitalising interest in books establish a prior tax deduction?
No. Verify the actual tax allowance.
10. How are mixed-purpose borrowings handled?
Allocate on supported use evidence.
11. Does the rule apply automatically to own business premises?
No. Determine the applicable income head first.
12. What if records span 1 April 2026?
Review transition under section 536 and preserve prior-law evidence.
13. Does this working give the final tax amount?
No. It calculates an interest component.
14. Can a resulting loss always offset other income?
No. Check the separate loss rules and applicable regime.
15. Can a missed instalment be added to a later one?
Do not assume a rollover; assess the applicable correction route and original year.
16. What supports the closing schedule?
The approved pool, five-year tracker, claims history and lender reconciliation.
Official sources
Income Tax Department: Income-tax Act, 2025, sections 20, 22 and 536