Home Loan Tax Benefits (FY 2024-2025) Explained

One of the advantages of taking a home loan is the various tax benefits it offers. You can claim tax deductions on both the principal and interest paid towards your home loan in a financial year. For the unversed, home loan tax deductions are offered under Section 80C, 80EE, 24(b), and 80EEA subject to certain terms and conditions. But can you claim these benefits if you fall into the new tax regime? This blog explores the different tax deductions available on home loans.

Can You Claim Home Loan Tax Benefits in the New Regime? 

Home loan tax benefits remain unchanged in the old tax regime. You can find all the details in the following sections. However, if you have opted for the new tax regime, you won’t be eligible for any income tax benefits under Section 80C, 24(b) and 80EE and 80EEA. However, there’s an exception.

Deduction under Section 24(b) is available for let-out property. If the net income from a rented property results in a loss, that loss can be set off against the profit from another property, but cannot be used to offset income from other sources like salary or other types of income. 

Now let’s move on to know more about these sections and the tax benefits they offer.

Overview of Tax Benefits on Home Loans

Home loan tax benefits are primarily governed by three sections of the Income Tax Act, 1961:

1. Section 80C

2. Section 24(b)

3. Section 80EE/80EEA

Let's delve into each of these sections to understand the tax deductions available.

Section 80C: Deduction on Principal Repayment

Key Points

• Maximum deduction limit: ₹1,50,000 per annum.
• Section 80C allows deduction on the principal amount repaid during a financial year.
• The deduction includes payment made towards stamp duty and registration charges. However, the deduction can be claimed only in the year these expenses were incurred. 
• Applicable for fully constructed property only.
• To be eligible for this deduction, you need to ensure that the property isn’t sold within 5 years from the time of possession. Any deduction claimed earlier will be added back to your income. 

Section 80C is a comprehensive tax-saving section that includes various investments and expenses. Home loan principal repayment is one of the eligible components under this section. It's important to note that this ₹1,50,000 limit is shared among other tax-saving instruments like PPF, ELSS, life insurance premiums, etc.

Financial Planning Tip

Prioritise home loan principal repayment within your Section 80C investments to maximise tax benefits

Section 24(b): Deduction on Interest Payment

Key Points

• Section 24(b) allows deductions on the interest paid on the home loan.
• Maximum deduction limit: ₹2,00,000 per annum for self-occupied property.
• There is no upper limit for rented-out property.
• The loan must be taken for the purchase or construction of a house/property.
• If the construction period exceeds the 5-year mark, you can claim deduction of only up to ₹30,000 for the financial year.

This section provides significant tax benefits, especially in the initial years of the loan when the interest component of the EMI is higher.

For Self-Occupied Property

• The deduction is capped at ₹2,00,000 per annum.
• Applicable even if the property is ready but unoccupied due to employment in another city.

For Let-Out Property

• There is no upper limit on interest deduction.
• The entire interest paid is deductible under "Income from House Property".

Financial Planning Tip

If you own multiple properties, consider carefully which one to declare as self-occupied to maximize tax benefits.

Section 80EE: Additional Deduction for First-Time Home Buyers

Key Points

• Additional deduction of up to ₹50,000 per annum.
• Applicable only for first-time home buyers.
• The loan should be sanctioned between April 1, 2016, and March 31, 2017.
• The loan amount should not exceed ₹35 lakhs.
• The property value should not exceed ₹50 lakhs.

This section provides extra tax benefits to first-time homeowners, encouraging home ownership among younger taxpayers.

Section 80EEA: Extended Benefits for First-Time Home Buyers

Key Points

• Additional deduction of up to ₹1,50,000 per annum.
• Applicable for loans sanctioned between April 1, 2019, and March 31, 2022.
• The stamp duty value of the property should not exceed ₹45 lakhs.
• Taxpayers should not own any other residential property on the date of loan sanction.

Section 80EEA extends the benefits of Section 80EE with higher deduction limits and relaxed property value criteria. Taxpayers eligible for deduction under Section 80EEA cannot claim deduction under Section 80EE.

Tax Benefits on Joint Home Loans

When two or more individuals take a joint home loan, each co-borrower can claim tax deductions individually, subject to their loan repayment share and property ownership.

Key Considerations

• Co-borrowers must also be co-owners of the property.
• Deductions are available in proportion to the ownership share.
• Each co-borrower can claim up to ₹2,00,000 tax deduction towards interest payment under Section 24 for a self-occupied property.
• Each co-borrower can claim up to ₹1.5 lakh tax deduction towards principal repayment under Section 80C.

• Each co-borrower can claim up to ₹1.5 lakh tax deduction towards interest payment under Section 80EEA.

   

Financial Planning Tip

Joint home loans can significantly increase the overall tax benefits for a family.

Pre-Construction Period Interest

For under-construction properties, the interest paid during the pre-construction period can be claimed as a deduction over five equal instalments, starting from the year the construction is completed.

Example: If you paid ₹5,00,000 as interest during the pre-construction period, you can claim ₹1,00,000 per year for five years, in addition to the regular interest deduction.

Loan Repayment Tax Benefits: A Practical Example

Let's consider a scenario to understand the potential tax savings:

• Loan Amount: ₹50,00,000
• Interest Rate: 8% p.a.
• Tenure: 20 years

Assuming you're in the 30% tax bracket:

1. Principal Repayment (Section 80C): ₹1,50,000

• Tax Saving: ₹45,000

2. Interest Payment (Section 24): ₹2,00,000

• Tax Saving: ₹60,000

3. Additional Deduction (Section 80EEA): ₹1,50,000

• Tax Saving: ₹45,000
• Total Potential Tax Saving: ₹1,50,000 per annum

Maximising Home Loan Tax Benefits

1. Opt for a joint home loan with a working spouse to increase overall deductions.
2. Claim House Rent Allowance (HRA) if living in a rented house while owning a let-out property.
3. Consider prepayment to increase principal repayment benefits under Section 80C.
4. Keep all documents organized for smooth tax filing.