How to Save Big with Home Loan Tax Benefits

A home loan can be a helping hand in buying your dream house. Different sections of the Income Tax Act of 1961 offer several deductions on both the principal and interest components of the EMIs you pay. These home loan tax benefits significantly reduce your taxable income.

However, with the introduction of the new tax regime, some of these benefits of home loans in income tax are no longer available. This makes it crucial to understand which regime may suit you the best. By exploring all the key sections, limits, and strategies, you can make an informed decision. 

Under the home loan principal deduction section, you can claim a deduction of up to ₹1.5 lakh per annum on the principal repayment. This includes payments made towards:

• EMI principal

• Stamp duty

• Registration charges (only for the year incurred)

Conditions:

• The house must not be sold within 5 years of possession, or the claimed deduction will be reversed

• The deduction is available only under the old tax regime

Under this section, you can claim a deduction for home loan interest paid under the head Income from House Property. The upper limit varies based on the nature of the property: 

• Self-occupied Property: Up to ₹2 lakh per annum

• Let-out Property: No upper limit on interest deduction

This deduction is available on an accrual basis, which means that you can claim it even if the interest is not paid in the same year.

If your property is under construction, you can claim the interest paid during this period in five equal instalments starting from the year of possession.

• Maximum deduction allowed is ₹2 lakh for self-occupied property

• Construction must be completed within 5 years from the end of the financial year in which the loan was taken

These sections offer extra benefits for first-time homebuyers:

• Section 80EE:
  • Claim a deduction up to ₹50,000 per annum on interest
  • Applicable if the loan is sanctioned between April 1st, 2016, and March 31st, 2017
  • Applies only if the loan amount is less than ₹35 lakh and the property value is less than ₹50 lakh
• Section 80EEA:
  • Claim a deduction up to ₹1.5 lakh per annum on interest
  • Applies if the loan was sanctioned between April 1st, 2019, and March 31st, 2022
  • Applies only for property value below ₹45 lakh; it cannot be claimed if you have already claimed a deduction under Section 80EE

These are over and above the exemption on home loan under Sections 24(b) and 80C.

For a joint home loan, each co-borrower can claim ₹1.5 lakh under Section 80C. In addition, they can claim ₹2 lakh under Section 24(b). This means a couple can claim up to ₹7 lakh in total deductions annually.  

However, the condition is that the couple should be co-owners of the property, co-borrowers of the loan, and contribute to EMI payments.

As per the latest update, you can enjoy lower tax rates by opting for the new tax regime. However, it also eliminates most deductions available under the older regime.

• No deduction under Section 80C (principal repayment)

• No deduction under Section 24(b) for self-occupied properties, only let-out and rental properties

• Section 80EE and 80EEA benefits are also not available

However, for let-out properties, the interest deduction under Section 24(b) is still allowed without any cap.

If the interest paid on a home loan exceeds the rental income for a let-out property, it results in a loss from house property. In this case, you can claim a deduction as follows: 

• Old Regime: You can set off the loss of up to ₹2 lakh against other income like salary

• New Regime: Setting-off losses is not allowed against other heads of income

1. What is the home loan tax benefit under Section 80C?

Section 80C allows a deduction of up to ₹1.5 lakh annually on the principal repayment of a home loan. This includes stamp duty and registration charges. The benefit is available only under the old tax regime and is subject to the condition that the property isn’t sold within five years.

2. How can I claim a deduction for home loan interest under the new tax regime?

Under the new tax regime, the tax benefit on home loan interest under Section 24(b) is not available for self-occupied properties. However, if the property is let out, you can claim the full interest paid as a deduction. Most other home loan-related deductions are not permitted in the new regime.

3. What are the exemptions on home loan interest for income tax purposes?

Under Section 24(b), you can claim up to ₹2 lakh annually for self-occupied homes and unlimited deduction for let-out properties. First-time buyers can claim additional deductions under Sections 80EE (₹50,000) or 80EEA (₹1.5 lakh), subject to conditions. These benefits are available only under the old tax regime.

4. What is the maximum home loan interest tax deduction available?

The maximum deduction for home loan interest is ₹2 lakh under Section 24(b) for self-occupied properties. For let-out properties, there is no upper limit. Additionally, first-time buyers may claim up to ₹1.5 lakh under Section 80EEA or ₹50,000 under Section 80EE, depending on eligibility.

5. How does the home loan principal deduction section work in income tax?

Section 80C allows a deduction of up to ₹1.5 lakh on the principal portion of your home loan EMI. This includes stamp duty and registration charges. The benefit is available only under the old tax regime and is revoked if the property is sold within five years of possession.

Return to Goal