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Income Tax Benefits on Home Loan: How to Save Tax on Home Loan?
Planning to buy a house soon? If yes, then you must know that purchasing a house by taking a home loan now can help you save a substantial amount on taxes later.
According to provisions of the Income Tax Act, a person availing of a home loan can claim exemption of tax both on interest payment as well as principal repayment in his ITR.
In this article, we will discuss in detail about the tax benefits of home loans and how to maximize tax savings on home loans.
Maximise your home loan tax benefits under the old tax regime while filing your ITR for FY 2024-25 with key deductions on principal, interest, joint loans and capital gains. File Today
Home Loan Tax Benefits Summary
| Deductions | Section | Maximum Deduction (INR) | Conditions |
|---|---|---|---|
| Principal | 80C | 1.5 Lakh | Applicable if the House property is not sold within 5 years of possession. |
| Interest | 24b | 2 Lakh |
Loan must be taken for the purchase/construction of a house construction must be completed within 5 years from the end of the FY in which the loan was taken. |
| Interest | 80EE | Rs.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. The home loan should be taken between 1st April 2016 to 31st March 2017. |
| Stamp Duty | 80C | 1.5 Lakh | It can be claimed only in the year these expenses are incurred. |
| Interest | 80EEA | 1.5 Lakh | The stamp value of the property should be Rs.45 lakh or less. The taxpayer is not eligible to claim a deduction under Section 80EE. The home loan should be taken between 1 April 2019 to 31 March 2022. |
Income Tax Benefit on Home Loan
Yes, if you are paying interest & principal amount towards a loan, you can utilize such amount to reduce your tax liability.
To gain more understanding of the provisions, let's divide the discussion of tax benefits into two parts:
- Tax benefits on payment of interest;
- Tax benefits on repayment of principal amount;
A house property for which a loan has been taken may either be a self-occupied property or a rented property. That is to say, the person who has taken the loan shall either occupy the property himself or shall let it out on rent. So let's analyze both the above-mentioned points and understand how we shall benefit in each of the cases.
Tax Benefits on Payment of Interest
Interest deduction under Section 24(b)
For a self-occupied house, interest of up to ₹2 lakh per annum is deductible under Section 24(b). This limit remains unchanged for FY 2024–25. In the case of let-out properties, there is no upper cap on interest deduction; however, the loss from house property that can be set off against other income is limited to ₹2 lakh in a financial year. The remaining loss can be carried forward for up to eight assessment years. Additionally, starting from Budget 2025, taxpayers can treat two properties as self-occupied for tax purposes, providing greater flexibility in tax planning.
Tax Benefit on Under Construction Home Loan
If you have bought an under-construction property, you will be eligible to claim tax benefits on the EMIs paid. However, this deduction for interest on a home loan is only available once the construction of the property is completed.
However, you can claim tax benefits on the interest paid between the period of completion of construction and the period of borrowing the loan in the following manner -
The Income Tax Act allows you to claim a deduction for pre-construction interest. You can deduct this interest in five equal installments starting from the year the property is acquired or construction is completed. This deduction is in addition to the regular deduction you can claim from your house property income. However, the total eligible deduction is capped at Rs 2 lakh.
For instance, if you took a home loan for construction and paid Rs 10,000 a month in interest, and the house was completed in 2019 after two years, you can start claiming the pre-construction interest of approximately Rs 2.4 lakh. This can be deducted in five equal installments starting from 2019. The maximum interest deduction under Section 24(b), including both current-year interest and pre-construction interest, is capped at Rs 2 lakh.
However, if your home loan qualifies for a deduction under Section 80EEA, you can claim an additional deduction of Rs 1.5 lakh.
Tax Benefits of Joint Home Loan
In cases where two or more individuals co-own a property and are co-borrowers on the home loan, each of them can separately claim deductions on the principal (under Section 80C) and interest (under Section 24(b)), effectively doubling the potential tax savings.
However, to avail of this benefit, both borrowers must also be co-owners of the property purchased with the loan. Opting for a joint loan with a family member can, therefore, maximize the overall tax benefit for the household.
Principal Repayment Deduction Under Section 80C
Taxpayers can claim up to ₹1.5 lakh annually on the principal component of a home loan under Section 80C, which also includes stamp duty and registration fees. This deduction is applicable once possession of the property is received, provided the property is held for at least five years.
Stamp Duty and Registration Charges Deduction Under Section 80C
In addition to claiming the deduction for principal repayment, you can also claim a deduction for stamp duty and registration charges under Section 80C, provided they fall within the overall limit of Rs 1.5 lakh.
However, you can only claim this deduction in the year when these expenses are incurred.
Deduction Under Section 80EE
Under Section 80EE, eligible taxpayers can claim an additional ₹50,000 in interest deduction for home loans sanctioned during FY 2016–17. Section 80EEA offers an extra deduction of up to ₹1.5 lakh for affordable housing loans taken between April 2019 and March 2022, provided the property value does not exceed ₹45 lakh. It’s important to note that a taxpayer can claim a deduction under either Section 80EE or Section 80EEA, but not both.
Additional Tax Benefits under Section 80EEA
The government introduced additional tax benefits under Section 80EEA in Budget 2019 to promote the housing sector. Homebuyers can claim a deduction under this section to a maximum of ₹1.5 lakh. However, to claim this deduction, there are a few conditions that need to be met as follows:
- The loan must have been sanctioned between April 1, 2019, and March 31, 2022.
- The stamp duty value of the property should not exceed Rs 45 lakh.
- You must not own any other residential property at the time of loan sanction.
- This deduction is not available if you're claiming a deduction under Section 80EE.
Capital gains exemption under Section 54
You can claim exemption on long-term capital gains under Section 54 if you sell a residential property and then reinvest the gains in buying or constructing another residential house in the country.
To qualify, the new house must be purchased either within one year before or two years after the date of sale, or constructed within three years of the sale. This exemption applies even if the new property is bought using a home loan and is in addition to deductions under Sections 80C and 24(b).
Under the old tax regime, taxpayers can claim substantial deductions—potentially up to ₹3 lakh—by including eligible expenses like home loan principal, interest (up to ₹2 lakh for self-occupied properties), and benefits for first-time home buyers and joint loans.The new regime offers minimal deductions, so old regime planning provides more tax-saving opportunities, especially for those with large housing loans.For optimal tax benefits and compliance, consider consulting a tax professional for personalized advice.
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Frequently Asked Questions
Q- Is Exemption available for a property which is under construction?
Till the completion of the purchase or construction of a house property, no interest shall be allowed. But pre-construction interest is allowed in 5 equal installments, starting from the year in which the house is purchased or the construction is completed. It is pertinent to note that pre-construction interest is included within the overall limit of Rs.2,00,000 for a self-occupied house, and only a fifth can be claimed each year.
Q- If I buy a house in co-ownership and the loan is also taken in co-ownership, what are the provisions relating to claiming an exemption?
Each co-owner shall be entitled to deduction individually; i.e. deduction of Rs. 2,00,000 can be claimed by all the co-owners in their ITR individually.
Q- I plan to raise a loan from my friend. Shall I be eligible for tax benefits on account of interest and principal repayment?
Interest payments can be claimed u/s 24, but the principal amount can only be claimed if a loan has been taken from notified institutions and banks. Hence, you shall not be entitled to claim repayment of the principal amount as a deduction.
Q- I had taken a loan to buy house property and I am paying interest and principal in relation to such loan. I am a salaried employee as well and want to claim HRA in my ITR. Am I eligible to claim interest deduction as well as HRA?
If you have taken a loan and bought a house property but are still living in rented accommodation, you shall be entitled to claim interest repayment, principal repayment, as well as HRA in your return. But if you have self-occupied the said property, then you can't claim HRA.
Still left with unresolved queries? Or require help to calculate the income from house property? Don't worry; write your queries below in comments or mail us at [email protected]. We shall get back to you shortly with the appropriate answers to satisfy you.
