Principal Repayment Under Section 80C
One of the most well-known benefits is the deduction on the principal portion of your EMI under Section 80C of the Income Tax Act. You can claim a deduction of up to ₹1.5 lakh per financial year. This limit is cumulative and includes other eligible investments
like Public Provident Fund (PPF), life insurance premiums, and more. It's important to remember that this deduction is available only after the construction of the property is complete. Additionally, if you sell the property within five years of possession, the tax benefits claimed under this section will be reversed and added to your income in the year of sale.
Interest Payment Under Section 24(b)
The interest paid on your home loan offers a substantial deduction under Section 24(b). For a self-occupied property, you can claim a deduction of up to ₹2 lakh annually. This applies to loans taken on or after April 1, 1999, for purchase or construction, provided the process is completed within five years. If the property is rented out, there is no upper limit on the interest you can claim as a deduction, though the amount of loss you can set off against other income is capped. To claim this, you must have the interest certificate from your lender.
The Old vs. New Tax Regime
A critical point to check is which tax regime you are opting for. The deductions under both Section 80C and Section 24(b) for a self-occupied property are only available under the old tax regime. If you opt for the new tax regime, which offers lower slab rates, you cannot claim these major home loan benefits. Salaried individuals without business income can choose between the regimes each year, so it is vital to calculate which option provides greater overall tax savings.
Benefits for Joint Home Loans
If you have taken a home loan jointly, the tax benefits multiply. Each co-borrower, who must also be a co-owner of the property, can individually claim deductions. This means each joint owner can claim up to ₹1.5 lakh for principal repayment under Section 80C and up to ₹2 lakh for interest payment under Section 24(b), effectively doubling the potential savings for the family. The claim should be in proportion to the ownership share and the loan amount serviced by each individual.
Claiming Pre-Construction Interest
Many taxpayers are unaware that they can claim deductions for the interest paid during the period the property was under construction. This is known as pre-construction interest. The total interest paid before the financial year in which construction is completed can be claimed as a deduction in five equal instalments. The claim for these instalments starts from the year you gain possession of the property. This is claimed under the overall limit of Section 24(b).
Special Deductions for First-Time Buyers
For those who took loans for affordable housing, Section 80EEA provided an additional interest deduction of up to ₹1.5 lakh. However, this was applicable only for loans sanctioned between April 1, 2019, and March 31, 2022. If your loan falls within this period and you meet the other conditions (like being a first-time buyer and the property value not exceeding ₹45 lakh), you can continue to claim this benefit over and above the Section 24(b) limit until the loan is repaid. This deduction is not available for new loans sanctioned after this date.
