Don’t miss these Home Loan Tax Benefits on Principal & Interest

Paying off a home loan can feel challenging, but tax benefits make it better. That’s because you get a chance to save tax on both the amount you repay (the principal) and the interest charged by the bank. These aren’t small amounts as they can ease the yearly load on your financial stability. 

With the key sections under the Income Tax Act, you can decrease your income that comes under the tax regime and hold on to more monthly income. If you’re repaying a loan or planning to take one, you must know how the tax benefits work in your favour. Let’s begin with this guide on home loan tax benefits.

Deduction on home loan principal repayment under Section 80C

Check out the details of the deduction for home loan principal repayment that is covered under clause (xviii) of sub-section (2) of Section 80C of the Income Tax Act, 1961:

1. Principal repayment gets you tax relief

If you want to pay off a home loan, the principal portion of your EMI will qualify for tax deduction under Section 80C. Following are the details of eligible payments you can claim. 

• Payments made to authorities like Delhi Development Authority (DDA), Maharashtra Housing and Area Development Authority (MHADA), or any other government housing body.
• Contributions to a co-operative housing society or a company that’s allotted you the property.
• Repayments made to banks, LIC, the National Housing Bank, or any recognised lender.
• You can even claim registration charges and stamp duty. So, they count only once and in the year they are paid.
• The total deduction under Section 80C (including principal repayment) is capped at ₹1.5 lakh per financial year.

2. Know when it applies

There are a few boxes to tick before claiming these home loan tax benefits:

• The property should be residential, not commercial.
• It should fall under the category of “Income from House Property”, or it would have if not self-occupied.
• Hindu Undivided Families (HUFs) and individuals can claim this deduction.

But here’s what won’t help you with 80C:

• If you paid admission fees or bought shares in a co-op society.
• Renovation or repair expenses after getting the occupancy certificate don’t count either.
• If you’ve already claimed interest under Section 24, it doesn’t overlap with the 80C benefit.

3. Don’t sell too soon

If you are selling the house within 5 years after taking its possession, there will be a reverse in the deductions that falls under Section 80C. That means there will be an addition of the total amount you claimed to your income. It will be done in the year you sell the house. It’s best to hold on a bit longer to keep the tax savings intact.

Also read: What is pink tax- How is it impacting you?

Deduction for home loan interest under Section 24(b)

If you’ve borrowed money to buy or build a house, Section 24(b) of the Income Tax Act can ease that financial load.

Let’s break down this home loan tax benefit.

1. Claim up to ₹2 lakh per year

If you’re living in the house you’ve taken a loan for, you can deduct up to ₹2,00,000 every financial year from your taxable income. But it happens only on the interest you pay.

This applies if:

• The construction or purchase of your house has been completed in 5 years. It will be counted from the financial year when you took the loan.
• You’ve taken the loan to buy or construct a residential property.

If the construction of your house takes more time than 5 years, the limit will decrease and reach ₹30,000 per year. 

2. Interest deduction for rented property

Got a rented or deemed let-out house? Under Section 24(b), there’s no cap on home loan interest. You can deduct the full amount from rental income and lower your tax burden.

3. Claims for pre-construction 

Even if your home isn’t completed yet, claim on interest paid during the pre-construction period. The total interest can be broken down in 5 annual instalments. It begins from the financial year your home’s construction gets completed.

Also read: Understanding Section 193: TDS on Interest from Securities

Home loan interest under Section 80EEA

Section 80EEA lets you claim a maximum ₹1.5 lakh/year on your home loan interest. Know more about its eligibility here:

Who can use this deduction?

Here’s the full checklist:

• Loan approval should be between 1 April 2019 and 31 March 2022.
• The stamp duty value must not go over ₹45 lakh.
• No residential property should be in your name from the date the loan has been sanctioned.

This deduction for home loan interest is completely separate from Section 24(b). That means you can claim the ₹2 lakh under Section 24 for interest plus ₹1.5 lakh under Section 80EEA deduction. It gives you a combined saving of up to ₹3.5 lakh on your interest outgo, depending on how much you’ve paid.

Also read: A Look at Section 43B of the Income Tax Act.

Conclusion

Taking a home loan can ease your tax burden if you know what Sections under the Income Tax Act can help. One can claim an income tax rebate on home loan for both interest payments and through Sections 80C and 24(b). 

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