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

Buying a house property is one of the biggest financial commitments in one's life and the Income Tax Act provides taxpayers with a meaningful way to reduce that burden every year. Between Section 80C and Section 24(b), a homeowner under the old tax regime can reduce their taxable income by up to Rs. 3.5 lakh every year. But the actual deduction that can be claimed depends on whether the property is self-occupied or let-out, the tax regime opted for, and if the loan is an individual or a joint loan. 

Most of the benefits are not available under the new tax regime but with one important exception. 

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	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

Taxpayers can claim a deduction of up to Rs. 1.5 lakh under Section 80C every year against the principal component of home loan repayment. However, this is part of the overall Rs. 1.5 lakh limit under Section 80C for other deductions. 

Section 80C deduction can only be claimed under the old tax regime and is not allowed under the new tax regime. 

2. Interest Repayment Under Section 24(b)

Under the head "Income From House Property", taxpayers can claim a deduction against the interest repayment of the home loan. 

For a self-occupied property, a deduction of up to Rs. 2 lakh can be claimed under the old tax regime. However, the same is not allowed for taxpayer opting for the new tax regime. 

For a let-out property, or a property given on rent, taxpayer can claim the interest deduction without any threshold limit. The entire amount of home loan interest paid can be claimed as a deduction. This deduction is allowed under both the old and new tax regime.

3. Deduction Under Section 80EE

Additional interest deduction up to Rs. 50,000 under Section 80EE is allowed to the home buyers. 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.
• This deduction is not available if the taxpayer files his return under the new regime.

However, the time period for this deduction has experied and can only be claimed if the housepoperty was bought in FY 2016-17. 

4. Deduction Under Section 80EEA

Under Section 80EEA, deduction can be claimed by first time 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.
• This deduction is not available if the taxpayer files his return under the new regime.

However, the time period to claim this deduction has experied and is allowed only if the home loan was taken in the specified period. 

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. Meaning, taxpayers having a rental income and opting for new tax regime, if having home loan against such property, can claim a deduction against the entire interest repayment amount. 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 claimed under Section 24(b) exceeds the income from the house property, it creates a loss under the home property income head. 

Taxpayers opting for old tax regime, can set-off this loss against other income up to Rs. 2 lakh annually. The excess loss can also be carried forward for up to 8 successive years and set off against future house property income.

Under the new tax regime, the loss from a let-out property can only be set-off against income from another house property. Unlike the old tax regime, the house property loss cannot be set-off against incomes from other heads. 

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: Rs. 1,50,000
2. Section 24(b) Interest: Rs. 2,00,000

Thus a total deduction of Rs. 3,50,000. 

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 Rs. 3,00,000 would be allowed as deduction under both the old and new tax regime.