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Home Loan Tax Benefit

Tax benefits of Owning a House

Updated on:  

08 min read

Buying your own house is a dream come true for everyone. The Indian government has always shown a great inclination to encourage citizens to invest in a house. This is why a home loan is eligible for tax deduction under section 80C. And when you buy a house on a home loan, it comes with multiple tax benefits too that significantly reduce your tax outgo. 

Many schemes like Pradhan Mantri Jan Dhan Yojana are flashing green light on the Indian housing sector by striving to bring down the issues of affordability and accessibility. In this article, we will discuss more home loan tax benefit.

Deduction for Interest Paid on Housing Loan

A home loan must be taken for the purchase/construction of a house and the construction of the house must be completed within 5 years from the end of the financial year in which the loan was taken. 

If you are paying EMI for the housing loan, it has two components –

  •  interest payment, and 
  • principal repayment. 

The interest portion of the EMI paid for the year can be claimed as a deduction from your total income up to a maximum of Rs 2 lakh under Section 24. 

From Assessment Year 2018-19 onwards, the maximum deduction for interest paid on Self Occupied house property is Rs 2 Lakh. 

For let out property, there is no upper limit for claiming interest. 

However, the overall loss one can claim under the head of House Property is restricted to Rs 2 lakh only. This Deduction can be claimed from the year in which the construction of the house is completed.

Deduction in respect of interest paid towards home loan during the pre-construction period

Say, you bought an under-construction property and have not moved in yet. But you are paying the EMIs. In this case, your eligibility to claim interest on the home loan as a deduction begins only upon completion of construction or immediately if you buy a fully constructed property. 

So does this mean you would not enjoy any tax benefits on the interest paid during the period falling between the borrowing of loan and completion of construction? No.

 Let’s understand why. The income tax law provides for the claim of such interest also, called the pre-construction interest, as a deduction in five equal instalments starting from the year in which the property is acquired or construction is completed, over and above the deduction you are otherwise eligible to claim from your house property income. However, the maximum eligibility remains capped at Rs 2 lakh.

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Deduction on Principal repayment

The Principal portion of the EMI paid for the year is allowed as deduction under Section 80C. The maximum amount that can be claimed is up to Rs 1.5 lakh.

 But to claim this deduction, the house property should not be sold within 5 years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.

Deduction For Stamp Duty and Registration Charges

Besides claiming the deduction for principal repayment, a deduction for stamp duty and registration charges can also be claimed u/s 80C but within the overall limit of Rs  1.5 lakhs. 

However, it can be claimed only in the year in which these expenses are incurred.

Additional deduction under section 80EE

Additional deduction under Section 80EE is allowed to the home buyers for a maximum of up to Rs 50,000. To claim this deduction, below mentioned conditions should be met

  • The amount of loan taken should be Rs 35 lakhs or less and the value of the property does not exceed Rs 50 lakhs.
  • The loan must have been sanctioned between 1st April 2016 to 31st March 2017.
  • And on the date of sanction of loan, the individual does not own any other house i.e first-time house owner. 

Section 80EE has been reintroduced effective from FY 2016-17. Earlier the deduction allowed under Sec 80EE was available for 2 years FY 2013-14 and FY 2014-15 only.

Additional deduction under section 80EEA

The budget 2019 has introduced additional deduction under Section 80EEA for homebuyers for a maximum of up to Rs 1,50,000

To claim this deduction, below mentioned conditions should be met:

  • The stamp value of the property does not exceed Rs 45 lakhs.
  • The loan must have been sanctioned between 1 April 2019 to 31 March 2020.
  • On the date of sanction of loan, the individual does not own any other house i.e first time home buyer. 
  • The individual should not also be eligible to claim deduction under section 80EE if claiming deduction under this section.

Deduction for Joint Home Loan

If the loan is taken jointly, then each of the loan holders can claim a deduction for home loan interest up to Rs 2 lakh each and principal repayment u/s 80C up to Rs 1.5 lakh each in their individual tax returns. 

To claim this deduction, they should also be co-owners of the property taken on loan. So, a loan taken jointly with your family can help you claim a larger tax benefit.

DeductionsSectionMaximum Deduction (INR)Conditions
Principal80c1.5 Lakhhouse property should not be sold within 5 years of possession
Interest24b2 LakhThe loan must be taken for purchase/construction of a w house and the construction must be completed within 5 years from the end of financial year in which loan was taken
Interest80EE50,000 Thousandamount of loan taken should be Rs 35 lakhs or less and the value of the property does not exceed Rs 50 lakhs
Stamp Duty80C1.5 Lakhcan be claimed only in the year in which these expenses are incurred
Interest80EEA1.5 LakhThe stamp value of the property should be Rs 45 lakhs or less. The taxpayer is not eligible to claim deduction under section 80EE

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