A home loan makes homeownership more achievable by offering long-term funding for a property that would otherwise be out of reach. However, what most of us do not pay attention to is that a home loan can lower the annual tax outgo by a considerable amount. It happens only if you know the deductions available under the Income Tax Act.
So, if you’ve taken a loan recently or are planning to apply for one soon, this post is worth your time. It breaks down all the home loan tax benefits you’re entitled to and how to make sure you claim them.
Understanding the basics of a home loan
If put simply, a home loan is a secured loan that you take from a bank or a housing finance company to purchase a residential property. The loan is backed by the house itself, which means until you repay it fully, the lender technically owns the property.
These loans are structured over long repayment periods, giving borrowers enough breathing space to repay gradually through EMIs. The EMI usually includes two parts: the principal (the actual borrowed amount) and the interest (the cost of borrowing).
From a tax angle, both these parts come with their own set of benefits. These components are eligible for different types of tax deductions under different sections of the Income Tax Act.
Principal repayment
In India, one of the most well-known tax-saving options for salaried individuals is Section 80C, under the old tax regime. It includes investments like life insurance premiums, PPF, and tax-saving mutual funds.
What many don’t realise is that the principal part of your home loan EMI is also covered here. The rule allows you to claim up to Rs. 1.5 lakh per year for principal repayments.
There’s a small condition, though the benefit is only available if the property is not sold within five years of taking possession. If you sell earlier, you lose the deduction for that year and may even have to reverse previous claims.
Another often-missed benefit under the same section is the cost of stamp duty and registration charges. These one-time charges can be claimed too, but only in the year you incur them. So if you paid Rs. 90,000 towards stamp duty this year, that amount goes towards your 80C limit, reducing how much you can claim for principal repayments.
Interest payments
Interest remains the bigger part of the EMI for most people, especially in the early years, and it comes with more generous tax benefits. Section 24 of the Income Tax Act lets you claim up to Rs. 2 lakh per year in deductions on interest paid for a self-occupied home. If the house is rented out, you can claim the full amount without any cap.
There are a few technical conditions here. The construction of the property must be completed within five years from the end of the financial year in which the loan was taken. If it’s delayed, the maximum deduction drops to Rs. 30,000 instead of Rs. 2 lakh.
If you’re still paying EMIs while the house is under construction, interest paid during that period doesn’t go to waste. You can claim it in five equal instalments once construction is complete, in addition to your regular Section 24 deduction.
Section 80EE gives benefits for first-time buyers
If this is your first property purchase and your loan was sanctioned between April 2016 and March 2017, you may qualify for an extra Rs 50,000 deduction under Section 80EE. This is over and above the deductions under Sections 80C and 24.
To qualify, the property value must be less than Rs. 50 lakh, and the home loan amount must be under Rs. 35 lakh. It’s a limited window, but if you happen to meet these conditions, it’s a great way to stretch your tax savings even further.
Section 80EEA for a chance at affordable housing
Even if you do not fall into the 80EE timeline but have a loan sanctioned between April 2019 and March 2022, then you could qualify for Section 80EEA. This gives you a deduction of up to Rs. 1.5 lakh on interest paid, again on top of the regular Section 24 benefit.
The stamp duty value of the property must be less than Rs. 45 lakh, and you shouldn’t already be claiming 80EE. This was introduced as part of the government’s push towards affordable housing. So if your loan falls into that three-year window, it’s worth checking whether you’re eligible.
Stamp duty and registration
The amount you pay for stamp duty and registration often feels like a sunk cost. But the Income Tax Act lets you claim this too, under Section 80C and within the INR 1.5 lakh limit, provided you do it in the same financial year in which it’s paid.
So, if you bought a house in March 2024 and paid Rs. 1 lakh in stamp duty, you must claim it when filing your 2023-24 returns. This Rs. 1 lakh will count within the total 80C limit, so it reduces what you can claim for other things like insurance or PPF.
Claim all by filing correctly
One of the most common reasons people lose out on home loan tax benefits is incorrect or late filing. You need to get the documents in order, mention the right sections in your ITR, and confirm the figures match what the lender reports in the annual loan certificate.
The key documents include:
- Interest certificate from your lender
- Loan sanction letter
- Proof of co-ownership (if applying jointly)
- Payment receipts for stamp duty and registration
Lenders will usually send you an annual interest certificate. This shows the breakup between principal and interest and acts as proof for your claims. Keep that safe.
When both co-owners repay, the benefits double
This is a smart tip, especially for couples or siblings buying property together. If both co-owners are also co-borrowers on the loan and both are paying from their incomes, each person can claim the full set of deductions.
That means both can claim up to Rs. 2 lakh each for interest under Section 24 and Rs. 1.5 lakh each for principal under 80C. But it only works if both names are on the loan agreement and the property papers. Actual repayment must happen from both parties’ incomes. Tax authorities need proof that both incomes contributed to the loan repayment. It’s a handy tax-saving tip for working couples planning to invest together.
Conclusion
A home loan can be one of the most powerful tax-saving tools available to individuals in India today. But as with most things in personal finance, the value comes from how you use it. Many people end up leaving benefits on the table because they forget to claim them, aren’t aware of the specific sections, or miss the paperwork.
With housing loan interest rates still competitive and flexible repayment options available from lenders that understand salaried and self-employed needs alike, there’s no reason not to make full use of these tax rebates. Therefore, if you’ve already taken the step towards homeownership, make sure you’re getting the full value from it.
Also Read: 5 Smart Ways to Repay Your Home Loan Faster
