INDEX
- Introduction
- Impact of the New Tax Regime on Home Loan Benefits
- Deduction for Interest Paid on Housing Loan under Section 24
- Deduction on Interest Paid During the Pre-Construction Period
- Deductions on Home Loan Repayment
- Home loan Deductions For FY 2024-25
Home Loan Tax Benefits: How to Save Income Tax on Your Home Loan
Introduction
When you acquire a home through a loan, you can save taxes by claiming deductions on various parts of the loan repayment, such as the interest portion. These tax benefits are outlined in the Income Tax Act, 1961. Understanding how to maximize these benefits can significantly reduce your taxable income and save you money each year.
Impact of the New Tax Regime on Home Loan Benefits
Under the new tax regime, some of the tax benefits available for home loans have been reduced. However, the tax benefits under the old tax regime remain unchanged. Below is a comparison of tax benefits under both regimes:
| Tax Benefit | Old Tax Regime | New Tax Regime |
|---|---|---|
| Section 80C – Deduction for principal repayment, stamp duty, and registration charges | Available | Not available |
| Section 80EE & Section 80EEA – Additional deductions for interest on home loan | Available | Not available |
| Section 24(b) – Deduction for interest on home loan for self-occupied property | Available | Not available |
| Section 24(b) – Deduction for interest on home loan for let-out property | Available | Available |
| Loss on Let-out Property – Offset against other income | Allowed only against income from house property | Not allowed against salary or other income |
Key Points to Note:
- Principal Repayment: Under the old regime, you can claim deductions under Section 80C for principal repayment and stamp duty/registration charges. These benefits are not available under the new regime.
- Interest on Home Loan: Deductions for interest on home loans for self-occupied properties are not available under the new regime. However, deductions for let-out properties are still available.
- Tax Loss from Let-out Property: If there is a loss from a let-out property, it can only be set off against income from other house properties under the old regime, but not against salary or other sources under the new regime.
Deduction for Interest Paid on Housing Loan under Section 24
To claim a tax deduction under Section 24, the home loan must be for the purchase or construction of a house. If construction is not completed within 5 years from the end of the financial year in which the loan was taken, the deduction may be limited.
Key Details of Section 24 Deduction:
- Self-Occupied Property: You can claim up to ₹2 lakh per year on interest paid.
- Let-Out Property: No upper limit on the deduction for interest paid.
- Delayed Construction: If construction is delayed beyond 5 years, the deduction is limited to ₹30,000 per year.
Deduction on Interest Paid During the Pre-Construction Period
If you purchase an under-construction property, the interest paid during the construction period can be claimed as a tax deduction. However, the deduction for pre-construction interest can only be claimed after the property is acquired or construction is completed. The deduction is spread over five equal installments starting from the year of completion.
Example:
If you take a loan in April 2021 and pay ₹10,000/month as interest for 24 months, the total interest paid during the construction period will be ₹2.4 lakh. Once the construction completes in April 2023, you can claim:
- ₹1,20,000 for the current year’s interest.
- ₹48,000 (1/5th of ₹2.4 lakh) for the pre-construction interest.
Thus, the total deduction for FY 2023-24 will be ₹1,68,000.
Additional Deduction under Section 80EEA
Section 80EEA provides an additional deduction of ₹1.5 lakh for interest on home loans, if eligible. This is over and above the ₹2 lakh limit under Section 24.
Key Points:
- Pre-construction interest is spread over five years starting from the year construction is completed.
- The total deduction for interest on home loans can go up to ₹3.5 lakh (₹2 lakh under Section 24 + ₹1.5 lakh under Section 80EEA).
Deductions on Home Loan Repayment
Several tax benefits are available on home loan repayment under various sections of the Income Tax Act, which can help reduce your taxable income.
1. Deduction on Principal Repayment under Section 80C
You can claim a deduction on principal repayment under Section 80C up to ₹1.5 lakh per year. However, if the property is sold within 5 years of possession, the deduction previously claimed will be added back to your income in the year of sale.
2. Deduction for Stamp Duty and Registration Charges under Section 80C
You can also claim deductions for stamp duty and registration charges under Section 80C, up to ₹1.5 lakh (this includes both principal repayment and stamp duty/registration charges). The deduction can only be claimed in the year these expenses are incurred.
3. Additional Deduction under Section 80EE
Section 80EE provides an additional benefit of ₹50,000 for first-time homebuyers who meet the following conditions:
- The loan amount should be ₹35 lakh or less.
- The property’s stamp duty value should not exceed ₹50 lakh.
- The loan must have been sanctioned between 1st April 2016 and 31st March 2017.
- The taxpayer must be a first-time homebuyer.
4. Additional Deduction under Section 80EEA
Section 80EEA provides an additional deduction of ₹1.5 lakh for homebuyers in affordable housing. Conditions for eligibility include:
- Property stamp duty value must not exceed ₹45 lakh.
- The loan must have been sanctioned between 1st April 2019 and 31st March 2022.
- The taxpayer must be a first-time homebuyer.
5. Deduction for Joint Home Loan
In the case of a joint home loan, both co-borrowers can independently claim tax benefits based on their ownership share in the property.
Home Loan Tax Deductions for FY 2024-25
Interest Deduction (Section 24(b))
- Self-Occupied Property: Up to ₹2 lakh.
- Let-Out Property: No limit on interest deduction.
- Pre-Construction Interest: Deducted in 5 equal installments after construction completion.
Principal Repayment Deduction (Section 80C)
- Up to ₹1.5 lakh for principal repayment and stamp duty/registration charges.
- Conditions: Property should not be sold within 5 years.
First-Time Homebuyer Deduction (Section 80EE)
- Up to ₹50,000 for interest on home loan.
- Eligibility: Loan ≤ ₹35 lakh, property ≤ ₹50 lakh, loan sanctioned between April 2016 and March 2017.
Affordable Housing Deduction (Section 80EEA)
- Up to ₹1.5 lakh for interest on home loan.
- Eligibility: Property ≤ ₹45 lakh, loan sanctioned between April 2019 and March 2022, first-time homebuyer.
Joint Home Loan
- Both co-borrowers can claim deductions for interest (up to ₹2 lakh) and principal repayment (up to ₹1.5 lakh) based on ownership.
Loss from House Property
- Loss due to home loan interest can be set off against income from other house properties, limited to ₹2 lakh per year. Excess can be carried forward for 8 years.
ITR Filing Last Date 2025
The last date to file your Income Tax Return (ITR) for FY 2024-25 (Assessment Year 2025-26) without any late fee is 31st July 2025. Ensure timely filing to avoid penalties.
Note: Above Deduction is only for old Tax Regime And also for Letout Properties Under New Tax Regime under Section 24(b) – Deduction for interest on home loan for let-out property only.
Summary of Home Loan Tax Benefits
Here’s a summary of the various home loan tax benefits available under different sections of the Income Tax Act:
| Section | Deduction Type | Maximum Amount | Conditions |
|---|---|---|---|
| Section 80C | Principal Repayment + Stamp Duty & Registration | ₹1.5 Lakh | Property should not be sold within 5 years of possession |
| Section 80EE | Additional Deduction (First-time Homebuyer) | ₹50,000 | Loan ≤ ₹35 lakh, Property ≤ ₹50 lakh, Loan sanctioned between April 2016 to March 2017 |
| Section 80EEA | Additional Deduction (Affordable Housing) | ₹1.5 Lakh | Property ≤ ₹45 lakh, Loan sanctioned between April 2019 to March 2022 |
| Section 24(b) | Home Loan Interest Deduction | ₹2 Lakh (self-occupied) | Deduction for interest on home loan (self-occupied or let-out) |
| Section 80C | Principal Repayment | ₹1.5 Lakh | Principal repayment deduction for home loan borrowers |
| Joint Home Loan | Interest + Principal Deduction | ₹2 Lakh (Interest) + ₹1.5 Lakh (Principal) each | Co-owners must be co-borrowers, deductions available for both |
Frequently Asked Questions (FAQs) on Home Loan Tax Benefits
1. Who can claim tax deductions on housing loans?
Only the owners of the property can claim tax deductions on home loans. In the case of a joint home loan with a spouse, both borrowers can claim deductions based on their respective ownership share.
2. How much tax benefit do I get on a home loan?
- Up to ₹2 lakh under Section 24(b) for interest on a self-occupied home.
- Up to ₹1.5 lakh under Section 80C for principal repayment.
3. Are there any tax benefits on a second home loan?
Yes, tax benefits are available for a second home loan. You can claim deductions for both self-occupied and let-out properties, depending on the situation.
4. Can my spouse claim income tax deductions when we buy the house jointly?
Yes, your spouse can claim separate deductions if they have a separate source of income.
5. Can I claim tax benefits on a home loan taken for renovation?
Yes, you can claim tax benefits on a home loan taken for renovation under Section 24, but the maximum deduction available for renovation loans is ₹30,000 per annum.
6. How to claim tax benefits on a home loan?
To claim home loan tax benefits, submit the necessary documents to your employer (if salaried) or calculate your income from house property and file your Income Tax Return (ITR).
Conclusion
By understanding and applying the tax benefits available on home loans, you can reduce your taxable income and save on taxes. Ensure that you meet the conditions for each section to claim the full benefits.