Buying your dream home is a big milestone in life. Along with the pride of ownership, a home loan offers significant tax benefits that can reduce your overall financial burden. Unfortunately, many homebuyers are not fully aware of all the tax deductions available under the Income Tax Act of India. If you are planning to purchase a house or already servicing a home loan, this guide will help you understand the home loan tax benefits you shouldn’t miss.
Why Home Loan Tax Benefits Matter?
When you take a home loan, you not only get financial support to buy or construct your property but also receive substantial tax savings every year. These benefits are provided under different sections of the Income Tax Act such as Section 80C, Section 24(b), Section 80EE, and Section 80EEA.
By making smart use of these provisions, you can save up to ₹5–7 lakhs (depending on loan amount and tenure) over the course of your loan.
1. Deduction on Principal Repayment – Section 80C
- Under Section 80C, you can claim a deduction of up to ₹1.5 lakh per year on the principal repayment of your home loan.
- This limit includes other investments like PPF, ELSS, LIC premiums, and fixed deposits.
👉 Example: If you paid ₹1,20,000 as home loan principal in a year, that entire amount can be claimed under Section 80C.
⚠️ Important Conditions:
- The property should not be sold within 5 years of possession, otherwise the tax deduction will be reversed.
- This benefit is available only on fully constructed residential property.
2. Deduction on Interest Paid – Section 24(b)
One of the biggest benefits of a home loan is the deduction on interest payments.
- Under Section 24(b), you can claim a deduction of up to ₹2 lakh per year on the interest paid for a self-occupied property.
- For a rented-out property, there is no upper limit, but total loss from house property that can be set off against other income is capped at ₹2 lakh per year.
👉 Example: If you pay ₹2,40,000 as interest in a year, you can claim ₹2,00,000 as deduction (if self-occupied).
3. Additional Deduction for First-Time Home Buyers – Section 80EE
To promote affordable housing, the government provides extra benefits under Section 80EE.
- You can claim an additional deduction of ₹50,000 per year on interest payments.
- This is over and above the ₹2 lakh deduction under Section 24(b).
⚠️ Conditions:
- Loan amount should not exceed ₹35 lakh.
- Property value should not exceed ₹50 lakh.
- The loan should be sanctioned between 1st April 2016 and 31st March 2017.
4. Additional Deduction for Affordable Housing – Section 80EEA
For loans sanctioned between 1st April 2019 and 31st March 2022, first-time home buyers can claim extra deductions under Section 80EEA.
- Deduction up to ₹1.5 lakh per year on interest payment.
- This is in addition to Section 24(b), meaning you can save up to ₹3.5 lakh on interest in a financial year.
⚠️ Conditions:
- Property value should not exceed ₹45 lakh.
- The buyer should not own any other residential property.
5. Deduction on Stamp Duty and Registration Charges
Apart from loan repayment and interest, you can also claim deductions on stamp duty and registration charges under Section 80C.
- Maximum limit: ₹1.5 lakh (combined with principal repayment and other 80C investments).
- This can be claimed only in the year of purchase.
6. Joint Home Loan Tax Benefits
If you take a joint home loan (with your spouse or parents), both co-applicants can claim deductions separately.
- Each co-owner can claim ₹1.5 lakh on principal (80C) and ₹2 lakh on interest (24b).
- That means a family can collectively save up to ₹7 lakh per year in taxes.
👉 Example: Husband and wife jointly pay ₹4 lakh as interest. Each can claim ₹2 lakh separately.
7. Pre-Construction Interest Deduction
If you took a home loan for under-construction property, you cannot claim interest benefits immediately.
However, the interest paid during the construction period can be claimed in 5 equal installments starting from the year in which the construction is completed.
- Limit: ₹2 lakh per year (for self-occupied).
- This ensures you don’t lose the benefit even if the property is not ready.
8. Tax Benefits on Second Home Loan
If you take a second home loan, the interest paid on it can also be claimed under Section 24(b).
- Earlier, only one property could be treated as self-occupied.
- But now, taxpayers can claim two properties as self-occupied without considering notional rent.
- This gives flexibility to homeowners who buy a second property.
Quick Summary of Home Loan Tax Benefits
| Section | Type of Deduction | Maximum Limit | Eligibility |
|---|---|---|---|
| 80C | Principal Repayment + Stamp Duty + Registration | ₹1.5 lakh | Self-occupied property |
| 24(b) | Interest Payment | ₹2 lakh (self-occupied), No limit (rented) | All homebuyers |
| 80EE | Additional Interest Deduction | ₹50,000 | First-time buyers (Loan sanctioned FY16-17) |
| 80EEA | Additional Interest Deduction | ₹1.5 lakh | First-time buyers, property ≤ ₹45 lakh |
| Pre-construction Interest | Interest before completion | ₹2 lakh (self-occupied) | Claimed in 5 installments |
| Joint Loan | Principal + Interest | Up to ₹3.5 lakh each | Co-owners, co-borrowers |
FAQs on Home Loan Tax Benefits
Q1. Can I claim both Section 80C and 24(b) benefits together?
✅ Yes. You can claim both principal repayment (80C) and interest payment (24b) in the same financial year.
Q2. What if my interest is more than ₹2 lakh in a year?
For self-occupied property, you can claim a maximum of ₹2 lakh. Excess cannot be claimed, but for rented property, you can claim more subject to set-off rules.
Q3. Can NRIs claim home loan tax benefits?
✅ Yes, NRIs are also eligible for deductions under 80C and 24(b).
Q4. Do I get tax benefits if I buy a plot?
❌ No. Tax benefits are available only for purchase or construction of residential property, not for land.
Final Thoughts
A home loan is not just a financial tool to buy your dream house—it’s also a smart way to save taxes every year. By properly utilizing Section 80C, 24(b), 80EE, and 80EEA, you can significantly reduce your tax liability and increase your overall savings.
At Wealth Crafts Solution, we guide our clients not only in getting the best home loan offers but also in maximizing their tax benefits. If you’re planning to buy a home, reach out to us today—we’ll help you with loan comparison, eligibility check, and end-to-end application support.
📞 Contact Wealth Crafts Solution today to make your dream home a reality with maximum savings!