How to calculate Pre construction Interest? –
- Calculate the Pre construction period of constructed house property. It is from the year of home loan taken till the year in which construction is completed. However, the interest will be allowed from the date of loan taken till the 31st March before the financial year in which construction is completed.
- Calculate the interest paid during the pre-construction period from the interest certificate issued by the bank. Each year the lending bank issues an annual home loan certificate which provides details of total EMI paid along with Interest and Principal Repayment.
- Divide the total pre construction interest in 5 equal installments. Claim the deduction of pre-construction interest from the financial year of completion of construction while filing ITR on the Income Tax e-Filing portal under the head “Income from House Property”.
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- 1 What is prior period interest?
- 2 How is the annual value of a let out house property calculated?
- 3 How do you show pre construction interest?
- 4 Can I claim both principal and interest on home loan?
- 5 Is pre EMI interest exempt from tax?
- 5.1 Can I claim both 24B and 80C?
- 5.2 How is Section 24 calculated?
- 5.3 How is pre EMI interest calculated?
- 6 What is pre-construction cost planning?
- 7 What is pre-construction period concept explain with an example?
- 8 What is the meaning of prior period?
- 9 What does prior period mean in accounting?
What is prior period interest?
What is Prior Period Interest (PPI)? (Pre-construction period interest) – Prior Period Interest means the interest from the ‘date of borrowal of the home loan up to the end of the Financial Year’ immediately preceding the financial year in which acquisition was made or construction was completed.
How do I claim principal and interest on home loan?
2 lakh or the actual amount that you have repaid can be claimed as deduction under Section 24 of the Income Tax Act. The deduction on interest can be claimed only when you have the possession of the house. Principal amount that you pay can be claimed to the maximum of Rs.1,50,000 under Section 80C.
How is the annual value of a let out house property calculated?
In most of the cases, Actual rent received will be the Gross Annual Value of Property for the purpose of calculation of Income from House Property. Net Annual Value is Gross Annual Value minus Municipal taxes like property tax, sewerage tax and so on.
How do I claim deduction under section 24b?
Introduction – Section 24b of income tax act allows deduction of interest on home loan from the taxable income. Such loan should be taken for purchase or construction or repair or reconstruction of house property. Such deduction is allowed on accrual basis, not on paid basis.
- In other words, the interest payable for the year is allowed as deduction whether such interest is actually paid or not.
- Deduction can be claimed for two or more housing loans.
- The deduction can also be claimed for two or more houses.
- For claiming deduction under this section, person must be the owner of the house property and also loan should be in his name.
Inclusions/Exclusions in Interest Interest includes service fees, brokerage, commission, prepayment charges etc. Interest/penalty on unpaid interest shall not be allowed as deduction. Type of Loan for which deduction allowed The deduction shall be allowed irrespective of the nature of loan whether it is housing loan or personal loan from any person/institution.
How do you show pre construction interest?
The Pre-construction Interest, is allowed as a deduction in 5 equal installments starting from the year in which the construction of the property is completed. In order to claim such pre construction interest the taxpayer needs to file ITR-1 if no co-owner is present. Otherwise, you need to file ITR-2.
How do you calculate pre construction period?
Then what is that as per Income Tax Act Pre-Construction period mean? – It’s very simple! Total interest paid up to the end of the financial year, immediate proceeding to the year in which house is completed. For example, a loan was taken in December 2019 and the construction of the house gets completed on September 20, 2021, in that case, the pre-construction period (to calculate interest) is considered from December 2019 to March 2021.
Even if the house is completed on March 31, 2022, then also pre-construction interest will be considered for the period between December 2019 to March 2021. Let us assume the loan amount was Rs.40,00,000 in December 2019 for 20 years tenure for repayment. The house got completed in September 2021. So the year-wise interest will be (amount assumed for calculation purpose only); FY 2019-20= Rs.1,33,000 ( December to March ) FY 2020-21= Rs.3,94,000 FY 2021-22= Rs.3,87,000 After completion, if the house property has been let-out then as per section 24b the allowable deduction of interest for the assessment year 2022-23 (the financial year 2021-22) will be; Rs.4,92,400 i.e.
pre-construction period is December 2019 to March 2021 and pre-construction period interest is Rs.5,27,000 (Rs.1,33,000 + Rs.3,94,000), and this deduction of the pre-construction period is divided in 5 instalments of Rs.1,05,400 i.e.1/5 th of Rs.5,27,000 and deduction will be allowed from FY 2021-22.
Thus, in FY 2021-22 interest allowed will be Rs.3,87,000 plus Rs.1,05,400 (1 st installment of pre-construction period), so the total will be Rs.4,92,400.1/5th amount of pre-construction interest which is Rs.1,05,400 will continue to be allowed in FY 2022-23, 2023-24, 2024-25, and 2025-26 as pre-construction period interest in addition to normal interest due in given financial years.
Even if the loan is fully re-paid, still pre-construction interests can be continued to be claimed in its allowed five assessment years.
Can we claim interest on housing loan for under construction property?
Home Loan Tax Benefits for Under-Construction Property – 2 min read A home loan for under-construction property can get tax deductions up to Rs.2 lakhs on interest paid in a year and up to 1.5 lakhs for principal paid under Section 80C of the Income Tax Act.
How is principal and interest calculated?
What is a principal + interest payment In a principal + interest loan, the principal (original amount borrowed) is divided into equal monthly amounts, and the interest (fee charged for borrowing) is calculated on the outstanding principal balance each month.
Can I claim both principal and interest on home loan?
How to claim both HRA and home loan tax benefit together While many employees claim income either on or on home loan repayment, there are few who claim both these deductions together. For a salaried person, who has very limited tax saving avenues, the tax deduction benefits available through HRA and home loan repayment become critical as it helps in saving a significant amount of tax.
- If you are eligible to claim these deductions simultaneously but if you are not utilising it fully, then you are losing your hard-earned money which you could have easily saved.
- Here are three ways you can claim HRA and deductions together.
- Scenario 1 : Owned house in one city but living on rent in a different city An increasing number of people now own houses in one city but live on rent in a different city.
Can such a person claim income tax benefit for both HRA and home loan repayment? “Yes, if you are living on rent in your city of job and own house in another city then income tax benefit can be claimed on HRA as well as Home loan interest,” says Sudhir Kaushik, Co-Founder & CEO, TaxSpanner.Com.
- This is the simplest way of claiming both HRA and home loan deductions together.
- First you must comply with the conditions related to HRA for which you must be an employed person and get HRA as part of salary.
- As per Section 10(13A) of the Income-tax Act, 1961 (‘Income-tax Act’), exemption from House Rent Allowance (HRA) is available if the twin conditions are fulfilled, i.e., expenditure actually incurred for payment of rent for residential accommodation and such residential accommodation is occupied by the individual,” says Sonu Iyer, Tax partner & people advisory services leader, EY India.
Moreover, you should also comply with the conditions related to home loan deductions. As per Section 23(2) of the Income-tax Act read with Section 24(b), interest on housing loan may be claimed as deduction for self-occupied house property up to Rs.2 lakh per financial year.
“Such deduction is available only if the house property is occupied by individual or cannot actually be occupied by the individual owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that ‘other place’ in a building not belonging to him.
In other words, it is vacant due to individual’s employment at another place,” explains Iyer. Though the owned property might be vacant or occupied by other family members you can still treat it is as a self-occupied house. “The law permits an individual to claim deduction for interest on housing loan for a property which cannot be occupied by the individual due to his employment, business or profession carried on at any other place,” says Iyer.
- So, if you are living in a different city due to occupation or employment you are eligible to claim both the deductions simultaneously.
- In the above example, as the individual cannot occupy his own property due to his employment in a different city, he may claim deduction for both HRA (for rented property) and interest on housing loan for self-occupied property,” says Iyer.
You can also claim up to Rs.1.5 lakh toward of home loan on a self-occupied property. Scenario 2: Owning a house but living on rent in same city Cities have become bigger, and for many it may take several hours for a one-way commute to the workplace. Many people prefer to move their accommodation closer to their workplace to reduce their commuting hours.
- So can you claim both deductions while living in the same city.
- In special circumstances, if an assessee can prove that the owned property is quite far from the place of work, and hence the rented accommodation has been availed, then HRA tax exemption and home loan benefits both can be availed,” says Deepak Jain, Chief Executive, TaxManager.in, a tax efiling and compliance management portal.
You can only claim HRA if it is part of your salary. “For claiming benefit of HRA under Section 10(13A), the person should not own such property and rent is actually paid by the person,” says Dr. Suresh Surana, Founder, RSM India. Though the owned property may still be considered a self-acquired property making you eligible to claim deduction on both principal and interest repayment of a home loan.
“Section 23(2) of the IT Act lists down the circumstances under which property can be considered as SOPs (Self Occupied Property) by an assessee. The conditions are: Where the property consists of a house or part of a house which— (a)is in the occupation of the owner for the purposes of his own residence; or (b)cannot actually be occupied by the owner by reason of the fact that owing to his employment, business or profession carried on at any other place, he has to reside at that other place in a building not belonging to him.
Further, the property should not actually be let out at any time during the year,” says Surana, Founder, RSM India. However, other reasons for living in the same city may not help in claiming the owned property as self-occupied and getting HRA tax deduction.
- The provisions do not explicitly provide explanation / clarification / comment on definition of “other place” with regards to the vicinity/area/city/state of the property to be situated.
- Further, on plain reading of the regulations, it can be understood that they do not extend the benefit of considering a property as SOP in case the person cannot actually reside in a property owned by himself due to proximity of children’s school,” says Surana.
So, if the reason is related to place of employment, claiming both deductions together will not be difficult. “As per the Income-tax Act, an individual may claim deduction for interest on housing loan for a property which cannot be occupied by the individual due to his employment, business or profession carried on at any other place,” says Iyer.
- However, such an individual should be careful and maintain substantive evidence to prove that he has to reside at the any other place due to his employment,” adds Iyer.
- Scenario 3: If one lets out his owned house and lives in the same city on rent Except for proximity to workplace, there could be many other compelling reasons for a person not to live in his owned house but in a rented accommodation.
“These reasons can be like the owned house is too small for the family or children’s school is near the rented accommodation,” says Jain. Can one claim both deductions in such a case? Yes, but it is not possible with a self-occupied house as this can happen only when you give your property on rent.
“If a person lets out his own property and lives in the same city or any other city for any reason including proximity to the children’s school or job location etc., the person shall be eligible to claim benefits of HRA as well as Home loan repayment,” says Surana. However, in case of let out property only deduction on is available.
If you have genuine reasons, there is no bar on claiming both deductions together. “For an assessee who lets out his owned house and due to bona fide reasons lives in the same city on rent, one can claim tax benefit for home loan repayment on the owned property which is let out and also can claim the HRA on the property in which he resides.” Says Jain.
- However, the reason for living on rent in the same city should be convincing.
- The genuine need to give your house on rent and living on rent might need to justify the income tax department.
- There is chance of disallowance because no prescribed rules given in act,” says Kaushik.
- Though you may have to forgo the principal repayment related deduction, but you would be able to get a maximum deduction of Rs 2 lakh on interest payment of your home loan.
For many people it may work out well as they may not need principal repayment benefit at all because it may be exhausted through other avenues like EPF contribution, NPS contribution, children’s education fee, life insurance and investments like ELSS, PPF, ELSS, NSC and so on.
If your annual interest payment is much higher than Rs 2 lakh then there are changes that your net loss from income from house property is above Rs 2 lakh giving you full deduction benefit despite rental income. ( Originally published on Jul 06, 2022 ) (Your on estate planning, inheritance, will and more.) Download to get Daily Market Updates & Live Business News.
: How to claim both HRA and home loan tax benefit together
Is pre EMI interest exempt from tax?
- When can I start claiming tax deduction on the pre-EMI of my home loan?
- How much is the total tax deduction that I can claim for interest paid on home loan?
- Can I avail pre-EMI on a home loan for an already constructed house or a ready-to-move flat?
- Can I claim tax deduction for the principal component of the pre-EMI repayment of the home loan?
- Can I claim tax benefit on the pre-EMI interest if I sell the property before taking possession of it?
You can start claiming tax deduction on the pre-EMI of your home loan only after the construction of the property has been completed. The tax deduction on the total interest paid during the construction period can be claimed in five subsequent years in five equal instalments. This is deducted under Section 24 of the Income Tax Act.
The total income tax deduction that you can claim on the interest component of a home loan is Rs.2 lakh under Section 24 (B) of the Income Tax. This is the aggregate amount allowed for a maximum of two self-occupied properties.
The pre-EMI option for a home loan can only be availed for a property that is under construction. This is because the loan amount is disbursed in tranches according to the requirements at the different stages of the construction.
When you are paying pre-EMI on your home loan, only the interest component of the home loan is being paid back as the EMI. This is the interest on the amount that has been disbursed so far and not interest on the entire home loan amount. For this reason, you cannot claim tax deduction on the principal component of the home loan.
If you are paying pre-EMI on your home loan but sell the property before taking possession of it, you can claim the interest paid as cost during computation of capital gains when the property is finally legally sold.
What is 30 of annual value in house property?
1.Standard Deduction – A standard deduction rate of 30% is applicable on the Net Annual Value of the property. The best part about this deduction is that it is allowed even when the actual expenditure on the property is higher or lower. The normal costs that may be incurred may be insurance, repairs, electricity, water supply, etc.
Is section 24 and 80EE difference?
What is the difference between Section 80EE and Section 24(b) of the Income Tax Act? – Under Section 24(b), a deduction of Rs 2 lakh is allowed for self-occupied property, and the entire interest is deductible for let out property. However, under Section 80EE, an additional deduction of Rs 50,000 is allowed only after exhausting the limit of Section 24(b).
Can I claim both 80EE and section 24?
Q – Can I claim a tax benefit under both section 24 and section 80EE in a single year? I bought my first house last year. – Yes, You can claim a tax benefit under both section 24 and section 80EE in a single year. Tax deduction under Section 80EE of the Income Tax Act 1961, can be claimed by first-time home buyers for the amount they pay as interest on home loan.
Can I claim both 24B and 80C?
Claiming HRA and home loan income tax benefits simultaneously – Explained I got possession of my house in October, 2021. I currently live in another rented house. Can I claim both HRA and tax benefits on housing loan for the whole year? I intend to let out my house though not occupied by any tenants presently.
- Can I still claim tax benefit on home loan? If yes, should I declare it as self-occupied or let out in my ITR form.
- Answer: There is no restriction on you claiming while claiming tax benefits in respect of home loan as long as you are satisfying the conditions laid down under Section 10 (13A) and 80C and 24(b).
Since you are paying rent for the house in which you are staying and which is not owned by you, you can claim the HRA benefit. As you are planning to let out the property and in case you are able to do so before 31st March, you can show this property as let out and claim the tax benefits in respect of interest paid under Section 24(b) and for repayment of home loan under Section 80 C up to Rs.1.50 lakh along with other eligible items.
The tax benefits for home loan are available for the full year in which possession of the property is taken. So you will be able to claim the benefits of HRA and for the full year as you intend to stay in the rented house for the whole year. The income tax laws allow a person to have maximum of two houses as self-occupied so even if you are not able to let out your house before 31st March, you can show it as self-occupied and I do not think there should be any problem as long as this house is not actually let out during the year.
Once you start letting out the house, you can claim vacancy allowance for the period during the year when it cannot actually be let out. Balwant Jain is a tax and investment expert and can be reached on [email protected] gmail.com and @jainbalwant on |Twitter Catch all the,, Events and Updates on Live Mint.
Can I get tax benefit on home loan during pre-construction period?
Home Loan Tax Benefits for Under Construction Property – Bajaj Finserv Purchasing a ready-to-move-in house can be an expensive affair as the prices of residential apartments are continually escalating. Saving some cash is possible if you consider investing in an under-construction property.
- Generally, under-construction properties quote 20% less than completed ones.
- By opting for an under-construction property, you not only gain monetary benefits on the cost of purchase but as well.
- Here are the tax benefits that you can avail yourself when you take a for an under-construction property: 1.
As under-construction properties are comparatively cheaper, the funds required for them would be relatively low. Hence, the EMI payable on the loan amount would also be economical.2. The EMI on loan is quite reasonable, as you can increase your monthly instalments to reduce the loan tenor.
- This will help you save more on your total payable interest.3.
- The person who avails of the home loan can postpone the deduction of the interest amount paid during the pre-construction phase if required.4.
- The interest paid on the home loan during the pre-construction phase can be availed of for deduction in five equal annual instalments.
If the property is occupied before the completion of these five years, then the deduction is limited to Rs.2 lakh. This is one of the significant tax benefits for under-construction properties. Also Read: 5. One can also avail of tax benefits for the stamp duty and registration fee on the property.
- Now that you know of the tax exemptions on home loans for under-construction properties, make an informed decision when choosing your lender.
- Bajaj Finserv, one of the most trusted lenders in the country, offers home loans at attractive terms and flexible repayment plans.
- DISCLAIMER: While care is taken to update the information, products, and services included in or available on and related platforms/websites, there may be inadvertent inaccuracies or typographical errors or delays in updating the information.
The material contained in this site, and on associated web pages, is for reference and general information purpose and the details mentioned in the respective product/service document shall prevail in case of any inconsistency. Subscribers and users should seek professional advice before acting on the basis of the information contained herein.
How is Section 24 calculated?
Points to Keep in Mind While Analyzing Income from House Property: –
- Under section 24 of the Income-tax Act, Tax on house property is calculated on the Net Annual Value of the property. And further, from the Net Annual Value, the deductions are done
- If the house considered for computing income from house property is vacant for a particular period of the year then is let out and also the owner or deemed owner is receiving rent then the computation should be done only on the rent received and not computed for the whole year. For example: If the home is released for 10 months for rent of Rs.10,000 then the gross value of the property will be calculated as 10*10,000=1,00,000. Tax will be thus computed on this amount after doing a regular deduction of 30% and deducting any interest on the loan.
- If the taxpayer’s home is vacant for the entire year and therefore the taxpayer is residing at different locations because of his employment but continues to be paying Municipal taxes, then this will be offset against income from other sources like salary, etc. within the same year. If the taxpayer is unable to offset it then it may be carried forward this up to eight years.
Tabular representation of major points of section 24 of the Income Tax Act:
|Particulars||Section 24 of the Income Tax Act|
|Tax Deduction Allowed||Two main deductions allowed namely: · Standard deduction @ 30% · Interest on borrowed capital|
|Tax Deduction Based on||Increasing Basis|
|Tax Deductions Limit||· For Self-Occupied Property: Rs.2 lacs · For Non-Self Occupied Property: No Limit|
|Borrowed Capital can be used for||Purchase of Property, Construction, Reconstruction, Repair, or renewal of Property.|
|Tax Deduction can be claimed up till||· In case of Construction and Purchase of the property to be completed in 5 years. · While for renovation and reconstruction, it can be availed only after completing the renovation and reconstruction.|
|Restriction on Sale of Property||Nil|
How is pre EMI interest calculated?
Calculation of Pre-EMI with an Example – Let us continue with the above example where a borrower is taking a Rs 30 lakh loan at 8% interest over a period of 20 years. However, let’s assume the borrower is taking a loan for an under-construction property that is due to be completed in 3 years.
Also, let’s consider the borrower opted for a Pre-EMI loan. Now, being an under-construction property, the bank does not disburse the entire amount, but in tranches as the construction progresses during these 3 years. Assume that the bank pays the borrower Rs 3 lacs at the outset of the loan. The borrower pays interest only on this amount of Rs 3 lacs, which amounts to Rs 2,000 per month (Rs 3,00,000 * 8% / 12 months).
The bank now disburses another Rs 3 lacs to the builder after 6 months. As a result, an amount of Rs 4,000 must be paid as pre-EMI for a total of Rs 6 lacs. The Pre-EMI amount increases with the total amount disbursed so far. As shown in the following illustration, the total payment during the Pre-EMI is as follows:
|Disbursement Timeline||Amount disbursed (Rs )||Total amount Disbursed (Rs )||Pre-EMI (Rs )||Regular EMI (Rs ) (Starts after 36 months)|
|Total Payments made by the borrower in 36 Months||2,68,000*||9,03,348*|
Nevertheless, he pays Rs 9,03,348 towards the regular loan repayment and is included in the 20-year term of the loan, whereas Rs 2,68,000 paid towards Pre-EMI is not included in the 20-year term and does not have any bearing whatsoever on the monthly payment including the principal and interest component, which is due after the end of the Pre-EMI period.
- As a result, in the example above, the total effective tenure of the loan is three years of pre-EMI period and twenty years of full-EMI period, resulting in a total of 23 years.
- Pre-EMI includes only the interest amount and is, therefore, cheaper than Full-EMI, which also includes the principal component.
The Pre-EMI duration, however, is not included in the original tenor of the loan. Pre-EMI period extends over and above the loan’s actual term. This means that the borrower will end up paying more interest than he would have otherwise.
What is pre-construction cost planning?
Process and Procedure for Effective Pre-Contract Cost Control Keywords: New Rules of Measurement 1, RIBA Plan of Work 2013, Cost Forecasting, Cost Planning Introduction Pre-contract cost control is defined as the systematic process of ensuring that the contract sum remains within the client’s approved budget by planning and controlling the costs of building throughout complete duration of the construction project (RICS 2016).
- The process start with a budget development through the Order of Cost estimate and is the controlled through Cost Plans by allocating cost limits to various element of the intended construction project.
- This provides design team with a balanced cost outline within which the design should fit (RICS 1982).
Value Management must form part of the process as it ensures a mutual understanding between the client and the design team. Hence the needs and expectations of each parties is concurrently met thereby providing a methodological base for decision making throughout the pre-contract stages, all with the aim of delivering value and function.
Pre-contract Cost control must therefore be a continuous process so that the current estimated final cost are continuously known and is considered in terms of approximate estimates and cost plans (Hackett and Robinson 2003). Cost Estimating and Forecasting In order to ensure effective pre-contract cost control, deliverables must be established from the beginning of the project and in order of importance.
This is known as cost forecasting. It is the process of allocating cost to a building project on basis of the information available and done in consecutive stages. The first step of cost forecasting is the Order of Cost Estimate produced during Stage 0-1 of the RIBA POW 2013 in accordance with the NRM 1-Part 2 (RICS 2012).
These estimates provides the starting point for project development along any project life cycle to enable developers to ascertain the financial implication of their project prior to the devisal of detailed designs (Skitmore 1988; Abou, Lewis and Alzarooni 2004). This is dependent on the type of project involved, and the level of precision will be dependent on the complexity and amount of alterations required which may compromise the certainty of the budget forecast (RICS 1982) There are 3 main Cost estimating techniques and these are dependent on the availability of design details available at that time and are used at the initial stages; (1) The Functional Unit method is based on a single price rate method extracted from a similar projects and is on basis of functional Unit obtained from Cost Analyses- BCIS, Price Books; Spon’s Price Books or Firm’s Own Library, (2) This functional method is relatively similar but is expressed on basis of GIFA x cost/m2 GIFA and, (3) The elemental cost estimate provide the basis for setting cost of the elements that will be referred to as the design develop and cost plans are prepared.
The accuracy of the procedure is dependent on the assumptions made by the consultant that must be confirmed on basis of its appropriateness with the design team. Cost based or unconfirmed assumption may have subsequent financial consequences at later stages (Hackett and Robinson 2003).
Once cost estimates are established, these must be presented in the form of formal reports explaining the methodology adopted for reaching the estimates and must include drawings/sketches used, sources of costs information indicating any adjustment made for location, inflation and date of estimate and assumptions & exclusions (Benge 2014).
Cost estimates must be carefully planned as it sets the budget for the project and forms the initial build up for the cost planning process that would be subsequently used for cost/budget control purposes. Risks Associated in Cost Estimating The process of cost estimating is undermined by various levels of risks, uncertainties and is dependent on the levels of information available for the project.
It is also dependent on the expertise and level of judgement of the professional working on the cost forecasting exercise (Abou et al.2004). A functional unit rate must be methodologically appraised with respect to the source and parameters from which the rate was generated. Similarly, any assumption and exclusions must be appended to the cost estimate (RICS 2012).
Rates must be adjusted to suit the project including the Location Index to suit the project, an allowance for the date of the estimate amongst various other considerations. For instance adjustment on the source of the cost information, the BCIS has excluded cost of external works in an estimate sand usually take average prices.
- This may increase the cost of the estimate which may be unrealistic.
- Hence, careful consideration must be undertaken in the adjustment of the rates on a case to case basis, e.g the extra cost for high quality finish must be added on a similar rates to ensure a correct estimate.
- The first step of the pre-contract cost control procedure requires judgment and experience to understand and adjust rates from previous analysis in order to reach an effective and realistic budget for the project (Cartlidge, 2009).
If the estimate is out of the client budget then major review must be done to either trim down cost by changing the initial project scope or by proposing the phasing of the project. Cost Planning The cost planning stage may only begin once the budget is signed-off from the cost estimate and the design team has devised specifications, sketches, plans and more detailed information that meet the client requirement.
The cost plan will provide the cost control points for the developing budget that bring design and cost together at the pre-tender stage (Cartlidge, 2009). This will ensure that the client is receiving value for money and make the design team aware of the cost implication of their designs. This enable a balanced and practical design that fits within the budget and provide a base for decision making by the client (Section 3.2.2 NRM 1 RICS 2012).
It breaks down the estimate to allocate the cost to various elements through the devisal of Cost plans 1, 2, 3 hence assisting the design team in both controlling the building cost and ensuring the best use of the employer’s funds. In order to prepare cost plans it is important to break down the building in separate levels as laid by the NRM 1-Section 3.
Each element will be dependent on the design and specification that will determine the selection of the material and design factors related to the element. It must hence be considered in isolation as laid by Section 3 until design, specification and costs are approved prior to the examination of its impact on other elements The 1st Formal cost plan is prepared at Stage 2 when the scope of the project is defined but no detailed design is available.
This will provide the basis of the Cost Plan 2 which is a progression of the previous plan and is done when the design development is complete. At Stage 4, upon completion of the technical designs, specifications and detailed information, the Cost plan 3 is prepared.
- Each cost plan evolves from the previous plan and is taken as a base to be refined as more design information are available.
- As design evolves, more detailed measurement can be made and cost accordingly revised and allocated as required.
- The accuracy of the Cost Plans will be dependent on the source of information and cost analysis adopted.
It is advisable that cost analysis from relatively similar projects are used and adjustments made for differences. While a number of possible designs can be considered for each elements, these must be laid on the cost plan to demonstrate how design affect cost (Hackett and Robinson 2003).
- As the design develops and detailed information are available updated Cost Plans must be reported to the client.
- It must clearly detail the assumptions, limitations and critical aspects considered for the devisal of the cost plan.
- Where there are consequent impact on elements cost, corresponding inverse changes must be made to other elements if the project cost is to be maintained within the approved cost.
This systematic cost monitoring and control through earned value ensures that the project remains in line with the budget(Cartlidge 2009). All relevant members of the team must accordingly be informed as timely communication is key. This methodical cost control procedure evolves as more design information is available,
- The effectiveness and clarity of this process requires that the client validates each cost plans on completion of the respective RIBA stages,
- Each stages must be signed-off prior moving to the next.
- In the event that agreed budget is likely to be exceeded or reduced, without any change to the brief, the client must be informed and instructions requested.
This as results will confirm the cost limits approved by the client (Hackett and Robinson 2003) at proceeding cost plans. Likewise, In the event of elements going out of budget, comparative cost plans must be called for and is carried out as part of the value engineering exercises that allows alternative design options to be considered; steel v/s pre-cast concrete frame, life cycle costs of cladding options; aluminium v/s steel,
- This allows for informed decision of economical alternatives with the aim of meeting the client’s set limit for the building cost.
- It is of critical importance that the pre-contract cost procedure be done in a systematic manner ensuring effectiveness and efficiency.
- As reviewed the pre-contract cost control procedures must go through respective processes having their distinct deliverables that would be a prelude to the next stage.
As reviewed the starting step is the Order of Cost Estimate that will set the limit of the budget and is followed by the devisal of the Cost Plan, 1,2 and 3 that would allocate cost to the respective elements of the buildings, the relative levels and development of the cost plans are based on the RIBA work stages and are dependent on design and development, specifications and information obtained from the design team.
- The effectiveness of the procedures is dependent on the communication, frequency of the meetings and mutual understanding of the deliverables.
- The process also depends on the skills, experience and judgement of the person administering the process so that necessary adjustments are made to the rates to reflect the design.
BCIS-Building Cost Information Service Spons Architect’s and Builder’s Price Book GIFA- Gross Internal Floor Area Stage 2- Concept Design RIBA POW 2013 Stage 4-Detailed Design RIBA POW 2013 NRM 1-3.2.5 RIBA Plan of Work 2013
What is pre-construction period concept explain with an example?
While computing income chargeable to tax under the head “Income from house property” in case of a let-out property, the taxpayer can claim deduction under section 24(b) on account of interest on loan taken for the purpose of purchase, construction, repair, renewal or reconstruction of the property.
Deduction on account of interest is classified in two forms, viz., interest pertaining to pre-construction period and interest pertaining to post-construction period. Post-construction period interest is the interest pertaining to the relevant year ( i.e., the year for which income is being computed).
Pre-construction period is the period commencing from the date of borrowing of loan and ends on earlier of the following: ➣ Date of repayment of loan; or ➣ 31st March immediately prior to the date of completion of the construction/acquisition of the property.
What is the meaning of prior period?
The term ‘prior period items’, as defined in this Standard, refers only to income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods.
What is meant by prior period?
Prior Period means the period from 1st April 2007 until the end of the Charging Year in which the reference is made.12.3 The Authority may, after giving notice to the Appointee in relation to water or sewerage connections or both, determine the question specified in subparagraph 184.108.40.206 Notice under subparagraph 12.1 or 12.3 may be given not more than once in any Charging Year and not later than 31st December.13.
- Information13.1 The Appointee shall furnish to the Authority, at the time when it gives notice to it under subparagraph 11.1 or 12.1, such Information as the Appointee reasonably believes is necessary to enable the Authority to make its determination,
- The Appointee shall also furnish to the Authority, after receipt by it of notice given under subparagraph 11.2 or 12.3 or this subparagraph, such further Information, specified in the notice, as the Authority may reasonably require to make its determination.13.2 The Appointee shall also furnish to the Authority from time to time, when so requested by it, such Information as it may reasonably require, to decide whether or not to give notice under subparagraph 11.2 or 220.127.116.11 Any Information furnished to the Authority under this paragraph shall, if the Authority so requires to make its determination, be reported on by a person (the Reporter ) appointed by the Appointee and approved by the Authority (such approval not to be unreasonably withheld ).
The provisions of subparagraphs 19.4, 19.5(2), 19.6 and 19.7(1) of Condition B shall apply to the engagement and terms of reference of each Reporter appointed pursuant to this Condition as they apply to those of each Reporter appointed pursuant to that Condition, save that the reference in subparagraph 19.4(1) to subparagraph 19.3 of that Condition shall be taken as a reference to this subparagraph.14.
What does prior period mean in accounting?
What is a Prior Period Adjustment? – Definition Definition: A prior period adjustment is the correction of an accounting error that occurred in the past and was reported on a prior year’s financial statement, net of income taxes. In other words, it’s a way to go back and fix past financial statements that were misstated because of a reporting error.
What are prior period items examples?
Example – Attachment of property of the enter- prises or loss due to earthquake. losses incurred in previous accounting period.7.3 Prior Period items are income or expenses, which arise, in current period as a result of error or omission in the preparation of financial statement of one or more prior periods.