4 Steps to Claim Interest on Home Loan Deduction

If you are a property owner who has just bought a home by taking a loan, then you can get tax benefits on the interest paid on such a loan. The deduction will be available under the head “Income from house property” as per Section 24, the amount of deduction depends on the type of house property: 

(i) In the case of self-occupied house property - the amount of deduction that can be availed is Rs. 2,00,000 

(ii) Whereas in case of a let-out (rented) property, the deduction is available without any limits. 

Under Section 80EEA, interest payments up to Rs. 1,50,000 are also available for residential house property subject to certain conditions. This deduction is over and above the Rs. 2 lakhs for interest payments available under Section 24(b) of the Income Tax Act. Therefore, taxpayers can claim a total deduction of Rs 3.5 lakh for interest on a home loan if they meet the conditions of section 80EEA for residential house property.

Further, you can also claim a deduction for the principal repayment of a housing loan (including payment of stamp duty and registration fee) under Section 80C up to a limit of Rs. 1,50,000 in a financial year.

Budget 2025 Update 

• It was proposed to amend Section 23(2) to provide that the annual value of the house property shall be taken as nil, if the owner occupies it for self or cannot occupy it due to any reason. 
• Further, this will be limited to only two houses.

Deduction of Interest on Loan for House Property in New Regime

As per the Budget 2023, if you opt for a new regime then the benefit available u/s 24(b) for self occupied property and Section 80EEA/Section 80C is not available. However, there is no restriction on benefit available u/s 24(b) for interest paid on home loan for let-out (Rented) property i.e., you can claim any amount of interest u/s 24(b) for let-out property even under the new regime.

However, if you opt for the old regime then as mentioned above following benefits will be available:

• Interest Deduction on loan up to Rs. 2,00,000 on self-occupied property u/s 24(b);
• Interest Deduction on loan for residential house property up to Rs. 1,50,000 u/s 80EEA;
• Deduction of principal repayment as loan u/s 80C up to Rs. 1,50,000 in a financial year;
• Interest Deduction on loan without any limit on let-occupied property u/s 24(b).

So, to summarize in case you opt for the new regime you will not be eligible to claim the first three deductions mentioned in the above list.

There are four steps to claim interest on your loan as a deduction from taxable income. 

Step 1: Documents Required

• Details regarding completion of construction or date of purchase of the property
• Borrower Details – Just like ownership, the home loan must be in your name to claim the deduction. You can also be a co-borrower in the loan.

Step 2: Submit These Documents to Your Employer

• If you want claim interest on home loan as a deduction you must furnish the interest certificate on your loan to your employer so they can adjust your TDS accordingly. Therefore, you won’t have to wait until the end of the year to find out your tax liability and adjust your tax. Do make it a point to inform your employer.
• What if you forgot to submit this documents to your employer? Don’t worry you can still claim the deduction while filing your income tax return on self-declaration basis.

Step 3: Calculation of Income from House Property

In the case of self-occupied house property, the deduction amount is limited to Rs.2 lakh. However, for let-out house property, there is no limit on the amount of interest you can claim as a deduction. 

Here are the steps to calculate your income from House Property.

Gross Value of the property (nil in case of self-occupied property and rental value if rented)

Less: Municipal Taxes actually paid 

Less: Standard Deduction (30% of Net Annual Value= Gross Value less municipal taxes) 

Less: Deduction of interest paid on loan for house property = Income from House Property.

Note that when you file your return with ClearTax, you don’t have to do any of these calculations. You only need to enter your details, and we will automatically calculate the amount, which will be your Income from House Property.

Step 4: Claim Interest on Home Loan as Deduction Under Section 80EEA and Principal Repayment Under Section 80C

Once you arrive at your total income from different heads, you can claim further deductions available under Section 80C and 80EEA.

If you have made a principal repayment during the year (check your loan instalment details), principal repayments can be claimed as a deduction under Section 80C. However, the total amount allowed to be claimed under section 80C is capped at Rs 1,50,000. 

Further, if you have made incurred interest expense against your loan for residential property over and above Rs. 2,00,000 u/s 24(b), then you can claim the same as deduction u/s 80EEA subject to certain other conditions. However, the total amount allowed to be claimed under Section 80EEA is also capped at Rs 1,50,000. 

Moreover, both this deductions u/s 80C and 80EEA is available only under the Old Tax Regime.