Home Loan Tax Benefit - How To Save Income Tax On Your Home Loan?

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.

Impact of New Tax Regime on Home Loan Benefits

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

• Deduction under section 80C for the principal repayment of the home loan, stamp duty, registration charges and Section 80EE, Section 80EEA are not available
• Deduction under section 24(b) for the payment towards the interest component of the home loan is not available for self-occupied property.
• However, deduction under section 24b is available for let-out property. 
• If net income from let out property results in loss, then such loss will be allowed to set off against profit from another house property but not allowed to set off against other heads of income like salary or other sources.

Deduction for Interest Paid on Housing Loan u/s 24

• A loan must be taken for the purchase or construction of a house property to claim a tax deduction.
• Construction must be completed within five years from the end of the financial year in which the loan was taken.
• When construction exceeds 5 years, deductions up to Rs 30,000 can be claimed.
• For Self Occupied property: The interest portion can be claimed as a deduction up to a maximum of Rs 2 lakh. 
• For let out property: There is no limit for claiming tax exemption on interest. You can claim deduction on the entire interest paid on your home loan. 

Pro-tip:

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:

• Property A: ₹1.5 lakh interest paid.
• Property B: ₹2.5 lakh interest paid.

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! 

Interest Paid During 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, 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.

Illustration

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).

Deduction on Principal Repayment under Section 80C

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.

Deduction for 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 member can help you claim a larger tax benefit.

Deduction for Stamp Duty and Registration Charges under Section 80C

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

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 shall 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.

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 1.5 lakh. 

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 a deduction under Section 80EEA if claiming a deduction under Section 80EE.

Summary Of Home Loan Tax Benefit

Loss under the Head House Property

• If you have not let-out any of your house property then there are high chances that you might incur a loss under the head house property, reason being the interest deduction that you might avail u/s 24(b). 
• Further, even if you have rented out the property, you can incur a loss under the head house property because there is no limit on interest on home loan deductions so your interest can exceed your rental income.
• However, in any of the cases, the overall loss incurred under the head ‘Income from House Property’ that can be set off against any other head of income. But the maximum losses that can be set-off is Rs. 2 lakhs only.
• If you have incurred a loss above Rs. 2 lakhs then you cannot set off such losses during the current year, but you are allowed to carry forward such losses for 8 years and claim the same against your income from house property in future years.