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

Home loan can be a highly beneficial tax saving tool for taxpayers, and the scale of benefit depends on choice of regime, status of occupancy, and quantum of loan interest due and principal payment for the financial year, etc. 

Using Section 80C and Section 24(b), a homeowner under the old tax regime can reduce their taxable income by up to ₹3.5 lakh every year.

Home Loan Tax Benefits - Key Highlights

The maximum limits for deductions available against interest and principal paid during the financial year are presented in a table below: 

Deduction	Component	Maximum Limit	Tax Regime
Section 80C	Principal	Rs. 1.5 lakh	Old Tax Regime
Section 24(b)	Interest	Self-occupied property: Rs. 2 lakh	Old Tax Regime
		Let-out property: Entire interest up to rental income	Old & New Tax Regime
Section 80EE	Interest	Rs. 50,000	Old Tax Regime
Section 80EEA	Interest	Rs. 1.5 lakh	Old Tax Regime

The Income Tax Act offers the following key home loan tax benefits:

1. Principal Repayment Under Section 80C

Deduction Available on: Principal amount repaid on home loan during the financial year. Claimed against gross total income.

Maximum Limit: ₹1.5 lakhs 

Conditions: 

1. Amount needs to be actually paid during the financial year.
2. Maximum limit of ₹1.5 lakhs is the combined ceiling limit under section 80C. 
3. Deduction allowed only under the old tax regime, not under the new regime. 

2. Interest Repayment Under Section 24(b)

Deduction Available on: Interest amount due for the financial year against home loan. Claimed against house property income.

Maximum Limit: 

1. For Self Occupied property: Up to ₹2 lakhs.
2. For Let-Out Property: Interest paid/due can be claimed.

Conditions:

1. Deductions eligibility depends on the choice of regime:
   1. Under the old regime: Interest deduction for both self occupied and let out property allowed.
   2. Under the new regime: Interest deduction on self occupied property not allowed, only let-out property allowed.
2.  Deduction can be claimed only when the construction is complete.
3.  

Other Information:

1. Interest due/paid during the period of construction can be claimed within 5 years of completion of construction. This concept is claim of called pre-construction interest. 
2. However, the total deduction claimed for the financial year including the pre-construction interest cannot exceed the statutory threshold limits.

3. Deduction Under Section 80EE

Deduction Available on: Interest on home loan sanctioned during the financial year 2016-17, for purchase of first home.

Maximum Limit: ₹50,000 available under section 80EE over and above ₹1.5 lakh deduction under section 80C.

Conditions: 

• Loan amount should not exceed ₹35 lakhs.
• The value of residential house property cannot exceed ₹50 lakhs.
• The assessee do not own any other house property on the date of sanction of loan.
• Home loan should be sanctioned between 01st April, 2016 and 31st March, 2017.
• Deduction available only under the old regime, not under the new tax regime.

Other Information:

• Interest due is also eligible for deduction, even if it is not paid during the financial year.

4. Deduction Under Section 80EEA

Deduction Available on: Interest due on home loan sanctioned between 01st April 2019 to 31st March, 2022 can be claimed under section 80EEA.

Maximum Limit: ₹1.5 lakh per financial year.

Conditions:

• Interest should not be eligible for deduction under section 80EE.
• Sanctioned during financial years 2019-20, 2020-21, or 2021-22.
• Stamp duty value of the residential property do not exceed ₹45 lakhs.
• Assessee do not own any other house property at the time of loan sanction.
• Deduction available only under the old regime, not under the new tax regime. 

Home Loan Tax Benefit Under the New Tax Regime

• The new tax regime does not allow any deductions under Section 80C, Section 80EE, Section 80EEA, and Section 24(b) for self-occupied property. 
• However, taxpayers opting for the new tax regime can still claim a deduction under Section 24(b) against let-out property. 
• This is the only home loan tax benefit in new tax regime. 

Other Home Loan Tax Benefits

1. Deduction on Interest During Construction

Taxpayers can also claim deductions against the pre-construction interest paid. 

• Pre-construction period: Time period during which property is still under construction is called pre construction period 
  
• Mechanism: Pre-construction interest is allowed as a deduction in five equal parts, beginning in the year construction finishes.
• Maximum Limit: The overall limit of ₹2 lakhs for self occupied property includes pre construction interest.

2. 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.

3. Loss under the Head House Property

When the interest deduction under Section 24(b) exceeds the income from a house property, it results in a loss under the head “Income from House Property.” 

Under the old tax regime, taxpayers can set off this house property loss against other income (such as salary or business income) up to ₹2 lakh in a financial year, and any remaining loss can be carried forward for up to 8 years to be set off against future house property income. 

However, under the new tax regime, a loss from a let-out house property cannot be set off against other heads of income and can only be adjusted against income from another house property.

How to Claim Home Loan Tax Benefits?

1. Check Eligibility: Make sure the deductions that you are eligible for based on loan type, property type, year of loan sanction, and the tax regime opted. 
2. Fill out the ITR Form: While filing ITR make sure to claim and mention home loan interest and principal deductions under relevant sections. 
3. Maintain Documents: Maintain proper documents such as the loan statement from the bank or financial institution showing the interest and principal paid during the year. 
4. Submit your ITR: Make sure to include all the necessary deductions and file your ITR within the specified due date.

Home Loan Tax Benefit Example

Mr. A has taken a home loan for a self-occupied property and the following are the details:

• EMI: Rs. 4,00,000
• Interest: Rs. 3,00,000
• Principal Rs. 1,00,000

Hence, as it is a self-occupied property, if Mr. A opts to file ITR under the old tax regime he will be eligible for the following deductions:

1. Section 80C principal: ₹1.5 lakhs
2. Section 24(b) Interest: ₹2 lakhs

Thus a total deduction of ₹3.5 lakhs. 

However, if Mr. A opts for the new tax regime then he cannot claim any deductions as both Section 80C and Section 24(b) for self-occupied property are not allowed. But if it was a let-out property, the entire interest of ₹3 lakhs would be allowed as deduction under both the old and new tax regime. However, since the losses under the head house property cannot be carried forward under the new regime, the interest tax benefit is limited to the extent of house property income.

Though the Income tax Act 2025 takes effect from 01st April 2026, the provisions of the 1961 act applies for AY 2026-27, as it pertains to income earned up to 31st March, 2026. 

Below is the comparison of the sections in the  Income Tax Act 1961 with those of Income Tax Act 2025. 

Topic	Income Tax Act 1961	Income Tax Act 2025.
Principle repayment deduction	Section 80C	Section 123
Interest repayment deduction	Section 24 (b)	Section 22 (1)(b) and 22(2)
Additional Interest deduction-first home buyers (2016-17)	Section 80 EE	Section 130
Additional Interest deduction-affordable housing (2019-22)	Section 80 EEA	Section 131