The First Pillar: Principal Repayment Deduction
The first major benefit comes from the principal portion of your Equated Monthly Instalments (EMIs). Under Section 80C of the Income Tax Act, you can claim a deduction of up to ₹1.5 lakh on the principal amount you repay in a financial year. This isn't
a dedicated home loan benefit; the ₹1.5 lakh limit is a shared cap that includes other popular investments like Public Provident Fund (PPF), Employee Provident Fund (EPF), and life insurance premiums. Additionally, the one-time costs of stamp duty and registration fees paid during the property purchase can also be claimed under this section in the year they are incurred. However, there's a key condition: if you sell the property within five years of possession, any deductions claimed under Section 80C will be reversed and added back to your taxable income in the year of the sale.
The Second Pillar: Interest Payment Deduction
The second, and often larger, benefit is the deduction on the interest paid on your home loan. This is governed by Section 24(b) of the Income Tax Act. For a self-occupied property, you can claim a deduction of up to ₹2 lakh per year on the interest paid. This full benefit is available for loans taken after April 1, 1999, provided the property's construction is completed within five years from the end of the financial year the loan was taken. If the construction exceeds this five-year period, the deduction limit for a self-occupied property drops to just ₹30,000. For properties that are rented out (let-out properties), the entire amount of interest paid during the year can be claimed as a deduction, though the amount of loss from house property that can be set off against other income is capped at ₹2 lakh.
How They Work in Tandem
The real power of the old tax regime for homeowners lies in using these two sections together. They are not mutually exclusive. A homeowner can claim deductions for both principal and interest simultaneously. For instance, if in a financial year you paid ₹1.8 lakh towards principal repayment and ₹2.5 lakh in interest for your self-occupied home, you could claim the full ₹1.5 lakh under Section 80C and the full ₹2 lakh under Section 24(b). This results in a total deduction of ₹3.5 lakh from your gross taxable income, significantly reducing your overall tax liability. This combined benefit is a primary reason why many taxpayers with home loans prefer to stick with the old tax regime, as these deductions are not available for self-occupied properties under the new tax regime.
Maximising Benefits with Joint Loans
The tax benefits can be further amplified if you have a joint home loan. If the property is co-owned and both individuals are co-borrowers repaying the loan, each person can claim these deductions individually. This means a couple could potentially claim up to ₹3 lakh on principal repayment (₹1.5 lakh each under Section 80C) and up to ₹4 lakh on interest payments (₹2 lakh each under Section 24(b)) for a self-occupied property. This effectively doubles the tax shield for the household, making joint ownership a highly effective tax-planning tool. The deduction for each co-borrower is based on their share in the loan and property ownership.
