A home loan not only helps you realize your dream of owning a house but also provides significant tax savings. The Indian government offers several tax benefits on both the principal and interest components of your home loan. Understanding these benefits can help you plan your finances better and save a considerable amount every year.
Major Tax Benefits Available on Home Loans
Home loan borrowers can claim deductions under multiple sections of the Income Tax Act, including:
- Section 80C: Deduction on Principal Repayment
- Section 24(b): Deduction on Interest Paid
- Section 80EE and 80EEA: Additional deductions for first-time homebuyers
1. Tax Benefit on Principal Repayment - Section 80C
Under Section 80C, you can claim a deduction of up to ₹1.5 lakh annually on the principal portion of your home loan EMIs.
Key points:
- The house must not be sold within five years of possession, or deductions claimed earlier will be reversed.
- Stamp duty and registration charges are also eligible for deduction under Section 80C, subject to the ₹1.5 lakh limit.
2. Tax Benefit on Interest Payment - Section 24(b)
Section 24(b) allows a deduction of up to ₹2 lakh annually on the interest portion of your home loan EMIs if the property is self-occupied.
Key points:
- If the house is rented out, there is no maximum limit for interest deduction.
- The construction or purchase must be completed within five years to claim the full ₹2 lakh benefit; otherwise, the cap is ₹30,000.
3. Additional Deduction for First-Time Buyers - Section 80EE
Section 80EE offers an additional deduction of up to ₹50,000 on interest paid, over and above Section 24(b) limits.
Eligibility Criteria:
- Loan must be sanctioned between April 1, 2016, and March 31, 2017.
- Loan amount should not exceed ₹35 lakh, and the property value should not exceed ₹50 lakh.
- The individual must not own any other residential property at the time of loan sanction.
4. Additional Benefit under Section 80EEA
Section 80EEA provides an additional deduction of up to ₹1.5 lakh on interest for loans sanctioned between April 1, 2019, and March 31, 2022, for affordable housing.
Eligibility Criteria:
- Stamp duty value of the property should not exceed ₹45 lakh.
- The borrower should not be eligible for deductions under Section 80EE.
Impact of Joint Home Loans
Taking a joint home loan can double your tax benefits. Each co-applicant (e.g., spouse, sibling) can claim:
- Up to ₹1.5 lakh under Section 80C (principal repayment)
- Up to ₹2 lakh under Section 24(b) (interest repayment)
This strategy is highly effective for maximizing tax savings if both applicants are earning individuals.
Tax Deductions on Under-Construction Properties
If you buy a property under construction, you can claim tax benefits on the interest paid during construction (known as pre-construction interest). This can be claimed in five equal installments starting from the year the construction is completed or possession is received.
New Regime vs Old Regime: What Should You Choose?
Under the New Tax Regime (optional from FY 2020-21 onwards), most deductions, including home loan benefits, are not available. If you plan to claim home loan deductions, sticking with the old tax regime is usually beneficial.
Common Mistakes to Avoid
- Not collecting the home loan interest certificate from your lender every year.
- Missing the deadline for submitting proof to your employer.
- Misunderstanding that tax benefits are automatically applied — you must declare them actively in your income tax returns (ITR).
Conclusion
Understanding the tax benefits on your home loan can significantly lower your effective borrowing cost. By leveraging Sections 80C, 24(b), 80EE, and 80EEA appropriately, you can optimize your tax outgo and achieve substantial savings. Plan your loan structure carefully, retain all necessary documentation, and consult with a tax advisor if needed to ensure you don't miss out on any benefits.
Need help estimating your tax savings? Use our Home Loan Tax Benefit Calculator today!
