Home Loan Tax Benefits Explained: Step-by-Step Guide

Planning to get a house of your own? A home loan can help you turn that dream into reality. After taking a loan, you have to commit to it financially during the entire repayment tenure. It goes without saying that careful financial planning is necessary before applying. 

The good news is that the home loan comes with tax benefits. If you utilise it wisely, it can help you save money every year. A thorough knowledge of how to make the most of these home loan tax deductions can reduce your tax obligation and increase your savings. 

You can apply for a tax deduction on the principal amount of the home loan. You can also claim benefits on the interest portion of the home loan. Under the Income Tax Act of 1961, you can enjoy home loan tax benefits under these Sections:

• Section 80C

• Section 24(b)

• Section 80EE and 80EEA

You can get a deduction on the principal amount on the home loan EMI under Section 80C. The maximum amount you can claim is upto ₹1.5 lakh. 

However, there are few conditions you must meet: 

• You can claim the deduction for stamp duty and registration charges, but only once in the year you pay them

• This benefit is only available for entirely constructed properties

• Don’t sell the property within 5 years or you will have to pay back the tax benefits you received earlier

You can claim up to ₹2 lakh per year on the interest paid under Section 24. It doesn’t have any upper limit for rent-out properties. 

The conditions for this section are:

• To claim a tax deduction, your loan amount should be for buying or building a house

• The construction must be completed within 5 years from the end of the financial year in which you took the loan

Under this Section, you can claim up to ₹50,000. Consider the following conditions to enjoy this benefit:

• The amount of the loan should be ₹30 lakh (it can be less than that but not more)

• The value of the property should be less than or equal to ₹50 lakh

• The lender should have sanctioned the loan between 1st April 2016 and 31st March 2017

• This benefit is available for first-time home buyers only

You can deduct up to ₹1.5 lakh if you meet the following conditions:

• The stamp value of the house has to be ₹45 lakh or less than that 

• The lender should have sanctioned the loan between 1st April 2016 and 31st March 2022

Taking a home loan can provide significant tax savings for both salaried and self-employed individuals. Here are the details:

While applying for a loan to purchase a house, you can get home loan tax benefits under different sections. Sections like 80 EEA and Section 24 (b) provide income tax benefits on interest charges. 

Multiple sections under the Income Tax Act are applicable to claim deduction on the payment of home loan interest. The following table gives you the name of the Section, and its limit and conditions. 

There are some mistakes that you should be aware of when claiming deduction on your home loan repayments. 

• Applying for deduction with a loan amount of more than ₹35 lakh or more with property’s value exceeding ₹50 lakh.

• Claiming tax deductions on interest and principal repayment as a co-owner, even if you haven’t paid your share of the loan. Understand that you can only claim deductions if you’ve actually paid your portion of the loan, not just because you’re listed as a co-owner.

• If you are a co-owner, claiming full deductions for interest and principal repayment. This is a mistake because your tax benefits are based on your share of the loan. 

• Submitting deduction details to both companies if you change jobs during the financial year. They might wrongly deduct the principal repayment twice, which can lead to a wrong tax filing and penalties. 

Know how you can claim the loan deduction without making any mistake or claiming it wrongly. 

Take a scenario to understand the possible tax savings under different sections:

Loan Amount: ₹5 lakh

Interest Rate: 8% p.a.

Tenure: 20 years

Assuming you're in the 30% tax bracket:

The principal repayment under Section 80C: ₹1.5 lakh

• Tax Saving: ₹45,000

The Interest Payment under Section 24(b): ₹2 lakh

• Tax Saving: ₹60,000

The additional deduction under Section 80EEA: ₹1.5 lakh

Tax Saving: ₹45,000

The potential total tax saving would be ₹1.5 lakh per annum. 

You can apply for the tax benefits in just a few simple steps:

1. Gather all your documents, most notably the completion of the construction or purchasing date of the property. For rent, give the property owner’s details. 

2. Submit the documents to your employer so that they can adjust your Tax Deduction at Source (TDS) accordingly. You can also claim the deduction on an income tax return on a self-declaration basis.

3. Calculate income for house property.

4. Claim interest under Section 80EEA and principal repayment under Section 80C. 

You can carefully plan your financial strategy and claim the deduction wisely to maximise your benefit. 

• Claim up to ₹1.5 lakh for principal repayment on your home loan as part of Section 80C

• If you live in the property, claim upto ₹2 lakh on interest. If the property is let out, there's no upper limit. It falls under Section 24(b) 

• Co-owners can each claim deductions on both principal repayment and interest payment

• To maximise tax savings, consider starting with a higher EMI to reduce interest payments early

When you take a home loan jointly, both borrowers can claim deductions on the interest up to ₹2 lakh (under Section 24(b)) and on the principal repayment up to ₹1.5 lakh (under Section 80C). This doubles the total deductions compared to a loan taken by just one person.

Sections 80EE and 80EEA are additional tax benefits where you can claim more deductions on your home interest. There are some special conditions that you need to follow for it. 

Follow the table to understand the tax deduction if you are a first-time buyer:

Note: You can’t claim deductions under both Sections. 

Eligibility Criteria for Availing First-Time Buyer Benefits

Eligibility for Section 80EE:

• Loan should be for an amount of ₹35 lakh or less 

• Property cost should be less than ₹50 lakh 

• Lender has sanctioned the loan between 1st April 2016 and 31st March 2017

Eligibility for Section 80EEA:

• Property cost should be ₹45 lakh or less

• Lender has sanctioned the loan between 1st April 2019 to 31st March 2022

• You can claim tax benefits on both principal repayment under Section 80C and interest payments under Section 24(b) 

• First-time homebuyers may also qualify for additional deductions under Sections 80EE and 80EEA

• Combining Section 80C and Section 24(b) can significantly reduce tax liability

You can claim up to ₹2 lakh per year from your taxable income for interest paid on a home loan under Section 24 (b). You can claim ₹1.5 lakh per year for the principal amount repaid towards a home loan under Section 80C. 

When you repay the loan in the form of EMIs, you can claim the total amount paid annually as deduction from your taxable income. This reduces your taxable income, and you have to pay lower taxes overall. This way, you can save a significant amount of money through it. 

Yes, if you meet the conditions, you can claim tax on both the principal and interest paid towards your home loan in a financial year.

The highest deduction under Section 24 is ₹2 lakh. To avail of it, you must be buying or building a house. For the case of construction, you must complete the house within 5 years from the end of the financial year when your loan was sanctioned. 

Yes, there are tax benefits that you can claim for your second property. According to Section 80C and Section 24, you can benefit from tax benefits on home loan repayments. But you can’t claim Sections 80EE and 80EEA as they are only available for first-time buyers. 

There are many calculators available online that you can use to know what your loan interest tax deduction will be. 

Yes, you can claim for the loan deduction as both a salaried and self-employed individual.

Yes, NRIs can claim home loan tax benefits in India under Sections 80C and 24(b). They can claim upto ₹1.5 lakh deduction on principal repayment and upto ₹2 lakh deduction on interest for a self-occupied property. Further, NRIs who are first-time buyers and joint loan applicants can enjoy additional benefits. 

For joint home loans, each co-owner who is also a co-borrower can claim upto ₹1.5 lakh deduction on principal under Section 80C. In addition, they can claim up to ₹2 lakh on interest under Section 24(b). Benefits of this apply in proportion to the ownership and repayment contribution made by the owner.

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