Tax Benefits on Home Loan

The Indian Income Tax Act offers various tax benefits on home loans, enabling the borrower to reduce stress and save money. Borrowers can claim deductions on both the principal repayment and interest payments, reducing their overall tax liability.

Tax benefits on home loans can significantly reduce your taxable income, making homeownership more affordable. By strategically planning your loan repayments and utilising all available deductions, you can maximise savings and ease the financial burden of owning a home.

Table of Contents:

• ⇾ Home Loan Tax Benefits Overview
• ⇾ Calculate Tax Benefit on Home Loan
• ⇾ Tax Deductions on Home Loan Repayment
• ⇾ Tax Deduction for Home Loan Interest Payments
• ⇾ Tax Benefits on Joint Home Loans
• ⇾ Additional Home Loan Tax Benefits
• ⇾ Home Loan Tax Benefits for Second Home Loan
• ⇾ Impact of New Tax Regime on Home Loan Benefits
• ⇾ Housing Loan Tax Exemption for Property Renovation
• ⇾ Frequently Asked Questions

Overview of Home Loan Tax Benefits

Home loan borrowers in India can claim tax deductions under different sections of the Income Tax Act, 1961. These benefits apply to:

• Principal repayment
• Interest payments
• Stamp duty & registration charges
• Joint home loans & second home loans
• Pre-construction interest & property renovation

Below is a simplified explanation of each section under the Income Tax Act 1961.

Other benefits claimable deductions include:

Tax Deductions on Home Loan Principal Amount

A home loan not only helps in acquiring property but also provides significant tax benefits under the Income Tax Act, 1961. Borrowers can claim deductions on both principal repayment and interest paid under different sections of the tax law. These deductions are subject to different situations and fall under different sections.

Section 80C

Section 80C of the Income Tax Act 1961 allows the taxpayer to claim deductions, including the principal repayment of a home loan. This deduction makes home loans more affordable for ordinary citizens.

Some key features of Section 80C for home loans include:

• The person can claim up to ₹1.5 lakh per year on the principal repayment of a home loan.
• The deduction is strictly up to ₹1.5 lakh, including all the investments like PPF, ELSS, NSC, life insurance, and EPF. So even if your total eligible amount is far over the maximum limit, you can only claim as much as ₹1.5 lakh.

People who are salaried, joint home loan borrowers and new home buyers can benefit best under Section 80C.

Tax Deduction for Home Loan Interest Payments

The maximum deduction for self-occupied homes is ₹2 lakh per year, while there is no upper limit for rented properties, which are subject to a loss set-off cap. Additional deductions are available for first-time homebuyers under specific conditions.

The tax deductions for home loan interest payments come under various sections like Section 24(b), Section 80EE, and Section 80EEA of the Income Tax Act.

Section 24(b)

Under Section 24(b), taxpayers can claim deductions on the interest paid on home loans under the "Income from House Property" category. This benefit helps reduce taxable income, making homeownership more affordable.

Some key features of Section 24(b) for home loans include:

• Self-occupied properties, the maximum limit is ₹2 lakh.
• Rented properties, there is no upper limit on the deduction (but is subject to overall loss from house property being capped at ₹2 lakh).

Section 80EE & 80EEA

Under Section 80EE, the income tax department provides an additional tax deduction for the interest paid for first-time home buyers. The 80EEA deductions were introduced, aiming to make homeownership more affordable for individuals purchasing budget-friendly properties.

Key Features of 80EE

• Deduction up to ₹50,000 per year on home loan interest.
• It is applicable only if the loan amount is ₹35 lakh or less and the property value is ₹50 lakh or less.

Key Features of 80EEA

• Additional deduction of up to ₹1.5 lakh on interest paid, over and above the ₹2 lakh limit under Section 24(b).
• Available only if the property value is ₹45 lakh or less.

Key Difference:

80EE only applies for loans sanctioned between April 1, 2016, and March 31, 2017, and has no restriction on property type, while only affordable property loans are applicable under 80EEA, sanctioned between April 1, 2019, and March 31, 2022.

Calculate Tax Benefit on Home Loan

You would need 3 major factors to calculate the tax benefits on your home loan:

1. Principal Repayment: Under section 80C
2. Interest Paid: Under Section 24(b) and additional benefits under Sections 80EE & 80EEA.
3. Other costs like stamp duty, registration charges, and pre-construction interest can also be claimed.

For example, suppose a borrower takes a home loan of ₹40 lakh at 8% interest for 20 years.

Annual interest payable would be ₹3.2 lakh.

Annual principal repayment will be ₹1.5 lakh.

Claimable deductions would be:

1. ₹1.5 lakh on the principal amount under Section 80C.
2. ₹2 lakh on interest under Section 24(b).
3. If eligible, ₹50,000 under Section 80EE or ₹1.5 lakh under Section 80EEA on the interest amount.

Total potential tax deduction = ₹4 lakh – ₹5 lakh, reducing taxable income and tax liability.

Tax Benefits on Joint Home Loans

A joint home loan is a loan taken by two or more co-applicants (such as spouses, siblings, or parents and children) to finance a property purchase. Opting for a joint home loan not only increases loan eligibility but also provides higher tax benefits, as each co-borrower can claim tax deductions separately.

On joint home loans, the borrowers can claim deductions under each section.

For a simple comparison,

Conditions to Avail Joint Home Tax Benefits

Although a joint account can be a great method to reduce taxes, there are certain conditions one must follow to avail maximum tax benefits on a joint home loan.

Additional Home Loan Tax Benefits

Apart from the standard reductions in charges in principal repayment and interest rates, other benefits can be claimed as tax benefits on home loans.

Tax Deduction on Stamp Duty & Registration Charges

Apart from home loan repayment, you can claim a one-time tax deduction on the stamp duty and registration charges paid while purchasing a house.

Applicable under Section 80C, this could be a lifesaver, as stamp duties cost around 4% to 7% of the property's market value, in most typical cases. Similarly, the registration charges are around 1% of the total property value.

Key takeaways under Section 80C include:

• Deduction is available under Section 80C, subject to a maximum limit of ₹1.5 lakh.
• Can be claimed only in the year of property purchase.
• Applies to both new homes and resale properties.
• Available only for individual taxpayers and not for companies.

Note: If you do not have a home loan but have purchased a property, you can still claim stamp duty and registration fees under Section 80C.

Home Loan Tax Benefits for Second Home Loan

If you are taking a loan for a second home, you are still eligible to claim tax deductions on interest payments, but there are some key differences from the first home loan.

Key takeaways include:

• Only one property can be claimed under this section, so no principal deduction (80C) for the second home.
• Interest deduction (24b) is available without limit for a rented property, but total loss set-off is capped at ₹2 lakh per borrower per year.
• Buying a second home for rental purposes can help offset taxable income through interest deductions.
• If the second home is self-occupied, the ₹2 lakh interest deduction limit still applies (same as the first home).

For example,

Housing Loan Tax Exemption for Property Renovation

If the home loan taken was to renovate, repair, or reconstruct a property, you can claim tax deductions on the interest paid. This falls under Section 24(b), which includes interest paid on home improvement loans.

Key takeaways include:

• A maximum deduction of ₹30,000 can be claimed for self-occupied properties.
• If the house is rented out, there is no upper limit on the interest deduction. However, like in the case of a regular home loan under Section 24 (b), a total loss set-off is capped at ₹2 lakh per year.

Impact of New Tax Regime on Home Loan Benefits

Understanding the impact of the new tax regime on home loan benefits is crucial for homeowners in India. The Union Budget 2025-2026 has introduced significant changes affecting home loan tax benefits under the new tax regime. Here's a generic overview:​

1. Treatment of Self-Occupied Properties
• Old Tax Regime: If taxpayers owned multiple houses, one of the houses could be treated as self-occupied and they would have to pay tax for the other ones, even if they were vacant.
• New Tax Regime Taxpayers can now claim two properties as self-occupied without any conditions, eliminating the tax on national rental income from a second home. This benefits homeowners, particularly those owning a second property under the same name in a different city.
2. Interest Deduction on Home Loans (Section 24(b))
• Old Tax Regime: A deduction of up to ₹2 lakh per annum on interest paid for self-occupied properties was provided.
• New Tax Regime: The deduction for interest paid on home loans is not available under the new tax regime for self-owned properties. However, they are still applicable for rented-out properties.
3. Principal Repayment Deduction (Section 80C)
• Old Tax Regime: A deduction of up to ₹1.5 lakh per annum on principal repayment of home loans was allotted.
• New Tax Regime: This deduction is not available under the new tax regime. ​Borrowers must carefully assess whether the benefits of the new tax regime's lower tax rates outweigh the loss of deductions like those under Section 80C.
4. Standard Deduction
• Old Tax Regime: A standard deduction of ₹50,000 was available for salaried individuals.​
• New Tax Regime: A higher standard deduction of ₹75,000 has been introduced, simplifying tax calculations. But this replaces specific deductions like those for home loan interest and principal repayments.
5. Implications for Homebuyers
• Tax Planning: Homebuyers must evaluate whether the benefits of the old tax regime's deductions outweigh the lower tax rates and higher standard deductions of the new regime.​
• Affordability: The ability to treat two properties as self-occupied without additional tax implications enhances affordability and investment appeal in the housing market.