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Home Loan Tax Benefit – Income Tax Benefit on House Loan

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 houses. 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 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 all the home loan tax benefits.

Deduction for interest paid on housing loan

A home loan must be taken for the purchase/construction of a house. If it is taken for con instruction of house, then it must be completed within five 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
  • 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 the 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 ‘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 on 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 Act allows to claim a deduction of such interest also, called the pre-construction interest. A deduction in five equal instalments starting from the year the property is acquired or construction is completed is allowed, 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.

For example, you have availed a home loan for construction and pay interest of Rs 10,000 a month. Construction of the house was completed in 2019 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 in five equal instalments starting from 2019. Maximum interest deduction under Section 24(b) is capped to Rs 2 lakh (including current year interest + pre-construction interest).
However, if your home loan is eligible for deduction under Section 80EEA, you can claim an additional deduction of Rs 1.5 lakh. We have discussed Section 80EEA later in this article.

Deduction on principal repayment

The principal portion of the EMI paid for the year is allowed as a 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 five 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 under Section 80C but within the overall limit of Rs 1.5 lakh. 

However, it can be claimed only in the year 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, the following conditions should be met:

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

Section 80EE was reintroduced but is valid for loans sanctioned till 31st March 2017 only.

Additional deduction under Section 80EEA

To promote the housing sector, Budget 2019 has introduced an additional deduction under Section 80EEA for homebuyers for a maximum of up to Rs 1,50,000

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

  • The stamp value of the property does not exceed Rs 45 lakh.
  • The loan must have been sanctioned between 1 April 2019 to 31 March 2022 (extended from 31 March 2021)
  • On the date of loan sanction, the individual does not own any other house, i.e. first time home buyer.
  • The individual should not be eligible to claim deduction under Section 80EE if claiming deduction under this section.

Deduction for a joint home loan

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 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 the purchase/construction of a w house, and the construction must be completed within 5 years from the end of the financial year in which the loan was taken.
Interest80EERs.50,000 The amount of loan taken should be Rs 35 lakh or less, and the property’s value does not exceed Rs 50 lakh.
Stamp Duty80C1.5 LakhIt can be claimed only in the year these expenses are incurred.
Interest80EEA1.5 LakhThe stamp value of the property should be Rs.45 lakh or less. The taxpayer is not eligible to claim deduction under Section 80EE.

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