If you are acquiring a home by taking a loan, then you can claim deductions on interest paid up to Rs.2 lakhs on self-occupied property under section 24(b). Whereas entire interest can be claimed as deduction in case of let out property. Principal repayment of Rs.1.5 lakhs can also be claimed under section 80C.
While obtaining a housing loan can be costly, it is also possible to benefit from several tax deductions that can help you save money on taxes each year. Let us understand the home loan tax benefits available in this article.
Home Loan benefits under the old tax regime remain the same as one can avail deductions without any restrictions, however, the under new tax regime benefits are curtailed, let’s know in detail about the same
If you own multiple house properties, you can choose which one to treat as self-occupied and which as let-out to maximize your interest deduction.
For example, if:
It’s better to treat Property B as let-out, because there’s no limit on interest deduction for let-out properties.
If you treat Property B as self-occupied, you’ll be limited to ₹2 lakh and lose out on ₹50,000.
So, choose wisely to claim the maximum deduction!
Say you bought an under-construction property and have not moved in yet but you are paying the EMIs. In this case, you can claim deduction only upon completion of construction.
Does this mean no tax benefit on interest paid before completion of construction? You have to wait, it will be available but with some conditions and in future years.
Let’s understand how.
The Income Tax Act allows you to claim a deduction for interest paid before completion of construction. This concept is called pre-construction interest.
Once the property is fully constructed, interest paid during under construction period can be claimed as a deduction in 5 equal instalments. In the same year, interest paid after the construction can also be claimed. However, the maximum eligibility remains capped at Rs 2 lakh. Lets understand this provision using an example.
You availed a home loan in April 2022 for construction and paid an interest of Rs 10,000 a month. Construction of the house was completed in April 2024 after two years.
Hence, you can start claiming the pre-construction interest of Rs 2.4 lakh (approx) paid by you only after the construction gets completed starting from the year 2024-25. Maximum interest deduction under Section 24(b) is capped at Rs 2 lakh (including current year interest + pre-construction interest). So if you paid interest of Rs. 1,20,000 during the year 2024-25 then you can claim a total interest deduction of Rs. 1,68,000 (i.e., Rs. 1,20,000 as current year interest and Rs. 48,000 as 1/5th installment of pre-construction interest).
Further, if your home loan is eligible for deduction under Section 80EEA, you can claim an additional deduction of Rs 1.5 lakh over and above the limit of Rs. 2 lakhs u/s 24(b).
The principal paid on the home loan EMI for the year is allowed as a deduction under section 80C. The maximum amount that can be claimed under this section is up to Rs 1.5 lakh.
But to claim this deduction, the house property should not be sold within five years of possession. Otherwise, the deduction claimed earlier will be added back to your income in the year of sale.
If the loan is taken jointly, each loan holder can claim a deduction for home loan interest up to Rs 2 lakh each and principal repayment under Section 80C up to Rs 1.5 lakh each in their 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 member can help you claim a larger tax benefit.
Besides claiming the deduction for principal repayment, a deduction for stamp duty and registration charges can also be claimed under Section 80C but within the overall limit of Rs 1.5 lakh.
Additional deduction under Section 80EE is allowed to the home buyers for a maximum of up to Rs 50,000. To claim this deduction, the following conditions should be met:
To promote the housing sector, Budget 2019 has introduced an additional deduction under Section 80EEA for homebuyers for a maximum of up to Rs 1.5 lakh.
To claim this deduction, below mentioned conditions should be met:
Which portion is allowed as a Deduction? | Section | Maximum Deduction (INR) | Conditions |
Principal Portion of Loan repaid | 80C | 1.5 Lakh | House property should not be sold within 5 years of possession. |
Interest incurred during the year | 24(b) | 2 Lakh | The loan must be taken for the purchase/construction of a house, If the construction is not completed within 5 years from the end of the financial year in which the loan was taken, only Rs.30,000 deduction is allowed Pre-construction interest is also allowed as a deduction and is subject to an overall limit of Rs, 2 lakhs. No restriction of Rs. 2 Lakh in case of let-out property. |
Interest incurred during the year | 80EE | Rs.50,000 | The amount of loan taken should be Rs.35 lakh or less, and the property’s value shall not exceed Rs 50 lakhs. The home loan should be taken between 1st April 2016 to 31st March 2017. Deduction under this Section and Section 80EEA is over and above deduction u/s 24(b) |
Interest incurred during the year | 80EEA | 1.5 Lakh | The stamp value of the property should be maximum Rs.45 lakh . The taxpayer is not eligible to claim a deduction under Section 80EE. The home loan should be taken between 1 April 2019 to 31 March 2022. |
Stamp Duty, Registration Fees etc. | 80C | 1.5 Lakh | Deduction allowed only in the year of payment. |