In this article I will be writing about the difference between EMI and pre-EMI. Most of the people heard about the EMI, not aware of the pre-EMI and the benefits involved in the pre-EMI. In this article we will look into more details about the pre-EMI and in what situation pre-EMI can be benefited your savings. I am looking to hear feedback from you after reading this article. Please post your comments about the home loans and EMI calculation at the comments section. You can subscribe to this blog here.
What is EMI?
EMI stands for Equated Monthly Installment.When you are applying for the loan, the loan amount has to be repaid in the specified number of months. That is called EMI. The EMI is calculated based on the interest rates, total loan amount and the tenure of the repayment for the entire loan. This will be decided by the bank once your loan application is got approved.
This process is very normal and everyone is aware of this term. But, there is another term pre-EMI, that is very less known to the people. In the next section we will look into that in details. Pre-EMI is one of the important fact which every buyer should know before applying for the loan when the building construction is not yet completed. After reading this article please talk to nearby banker to know more about the Pre-EMI and its advantages. The process for Pre-EMI can be different from each bank.
also read:
What is pre-EMI?
Sometimes the whole money for the house is not disbursed to the builders. For example, if you are booking an apartment to a builders in Bangalore city on March 2009, the estimated completion time for the project is March 2011. You will have the option to tell the bank to not disburse the entire amount before completion of the project, and tell them to partially disburse the money.
The partial disbursement will happen like when the builder completes the first four floors for the first disbursement and the next stage of disbursement will happen after completion of the eight floors. These are the agreements between bank and builders based on bank’s decision.
Here the pre-EMI term comes into the play. The real loan repayment will start only when the entire loan amount is disbursed to the builders. While the bank is doing the partial disbursement, you will have to pay the pre-EMI, that is only the interest accrued on the disbursed money. In our example, you will have to pay the pre-EMI for the two years when the apartment is under construction.
Tax Savings on pre-EMI
You can use the home loans for tax savings only when the construction is completed. In this case, pre-EMI is paid while the house is under construction. So, you cannot use the pre-EMI as the tax deduction source. Once the construction is completed, the total pre-EMI interest paid is shown in the five equal installments in the subsequent years.
For example, if you have paid Rs.100000 as the pre-EMI, then Rs.20000 will be shown in the next five years as tax deduction. Note that pre-EMI is only the interest paid during the period. If you have paid any principal amount, that is not eligible for the tax deduction. That is lost for ever. Please consult your tax consultant carefully before taking any important decision.
Summary
In this article have explained about what is EMI and pre-EMI in the detailed manner. This will clear all your doubts about the pre-EMI and how to use the pre-EMI amount for the tax deduction. I am happy to answer all your questions regarding the home loans and tax savings. If you have any queries, please post it in the comments section below. I will answer your queries. Thanks for reading this article!!!
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July 10, 2012 at 12:59 am
Good article
July 10, 2012 at 1:01 am
Hi,
really a nice article.
Thanks,
Sekhar
July 10, 2012 at 4:22 am
Hello Sekhar,
Thank you for reading the blog!!
Thanks,
Krishna
July 11, 2012 at 10:11 pm
Dear Krishna
Simple way to explain the difference in pre emi and emi which almost every one faces this issue in their lives.
Can pre-emi interest paid be added to cost of acquisition in the event the property is disposed off prior to taking possession.
Regards
Rajagopal
August 24, 2012 at 9:10 am
Can I also start repaying the principal amoun along with pre-emi?Will banks allow that? If so I think pre- emi will be better than normal EMI.
Assuming I have a repaying capacity of 40k per month but currently I am paying a rent of 15 k. so If I go for EMI my loan amount has to be for an EMI less than 25k.but if pre EMI is 15K I have option of start paying some part of principal. which may also reduce the intrest once pre-emi period is over.So if is a flexi emi repayment option is avilable I think you can have the best option with pre-EMI. AM I correct?
Pleas clarify If not.
September 20, 2012 at 2:54 pm
Do we have Fixed/Floating intrest rate option available for PRE-EMI?
October 5, 2012 at 1:55 pm
Hi,
This is cool.
Want to know details say if I take loan of 20 Lakhs and my house construction would be over in a year.
What would be the amount (monthly) I would be paying to bank, say rate of interest is 10.5%.
If you could add this to your article it would be really helpful.
Regards,
Ravi
December 8, 2012 at 9:04 am
good 2 know pre emi. I think it is linked to CLP (construction Linked Plan). Can we have pre emi in Down payment at once, plan. Mean suppose project is nearly to complete in 1 year and there is no CLP plan for this. So we go for DP plan but want to disburse full amt only when project is completed. Till one year I want to pay PRE- EMI. Is it possible
February 28, 2013 at 1:12 pm
Heloo
I Have gone thorugh the article and came to knw about few facts bout PEMI and EMI i have some ques
1) PEMI is amount of interest paid on partial disbursement by Bank , i want to knw if total loan amount is 35 lac and 30 lac is disbursed till date and PEMI = 27000 appx so i am giving 27000 rs only intrest , as full disbursement not occured yet and my tenure for 20 yrs also not started till now.
2) Bank is giving me option tht i can strt EMI on disburse amount ( i.e 30 lac ) which will cost me EMI = 31000 appx which will contain both interest and principal amount both.
I am not getting wht is correct for me as in point 1 i m giving only interest part and thinking that total money is going as waste as no interest and principal of 20 yrs tenure started
if i will go with point 2 then EMI will strt on 30 lac disbursed amount out of 35 lac sanction amount and possesion is still not in hand and i will pay intrest n principal of 20 yrs tenure
So plz suggest me is there is very big difference in point 1 & 2 or the way i m thinking is not correct or what is right for me PEMI or EMI
Also plz tell if i start EMI on 30 Lac then can i claim both intrest and principal amout i will pay whole year in tax rebate or as still whole 35 lac amount not disbursed and possession not in hand i cant go for tax rebate.
i hope u understand my situation so kindly suggest me
Rgds
Rohit
March 2, 2013 at 8:14 am
Hello Rohit,
Before the possession, what ever the amount you are paying for the principal is not claimed for the tax exemption, If you pay for the pre-EMI, then the amount can be claimed for the next five years once the possession happened. The amount includes the interest on current year + pre-EMI 1/5 amount (Rs. 1500000). So, based on that please decide.
By seeing your details, it would be hard to provide any suggestion.
Thanks,
Krishna
March 10, 2013 at 8:41 am
I have a situation where builder has agreed to pay all PRE-EMIs by directly crediting the PRE-EMI amount in my Savings Account. I pay the Bank from my account. This arrangement is valid till completion of construction. However I am not sure how the TAX will be treated in this case. Is the amount that Builder is paying me considered as Source of Other Income and I have to pay tax and then reclaim it after possession over next 5 years time frame ? In this case I have paid 20% and Bank released 75% with 5% to be paid at time of possession by Bank.
March 11, 2013 at 6:11 am
HI Srikant,
Please explain your question in detail.
Thanks,
Krishna
April 7, 2013 at 3:30 am
Sir,
I took loan from a bank for 30 Lakh on march 13th.
My emi of 29250 started from 5th April.
But they took a check from me on the name of pre emi of 15851 Rs as pre emi quoting interest amount on 30 Lakh for march 13th to march 31st.
While i had purchased the house in a resale.
Is this correct.
I am getting a foul play here.Please advise
Thanks
Niel
April 9, 2013 at 6:19 pm
Hi, this weekend is nice for me, because this occasion i am reading this great
informative piece of writing here at my residence.