Old vs. New Tax Regime: The Deciding Factor
Before diving into specific deductions, the most critical choice a home loan borrower must make for the Financial Year 2025-26 (Assessment Year 2026-27) is between the old and new tax regimes. The new regime, which is the default option, offers lower
tax rates but eliminates most deductions, including key home loan benefits for self-occupied properties. The old regime has higher tax slabs but allows you to claim deductions on principal and interest payments. For many homeowners, especially those in the early years of their loan when interest payments are high, the old regime often proves more beneficial. A careful calculation based on your income and total eligible deductions is essential.
Principal Repayment: Deduction Under Section 80C
Under the old tax regime, the principal portion of your EMI is eligible for a deduction under Section 80C of the Income Tax Act. You can claim up to ₹1.5 lakh per financial year. This limit, however, is a shared cap that includes other popular investments like Public Provident Fund (PPF), Equity Linked Savings Schemes (ELSS), and life insurance premiums. Payments made towards stamp duty and registration charges during the purchase of the property can also be claimed within this limit in the year they are incurred. A key condition is that you cannot sell the property within five years of possession; doing so would reverse the tax benefit claimed.
Interest on Loan: The Section 24(b) Benefit
The most substantial home loan tax benefit comes from the interest paid, deductible under Section 24(b) in the old tax regime. For a self-occupied property, you can claim a deduction of up to ₹2 lakh annually. To qualify for this full amount, the property's construction must be completed within five years from the end of the financial year the loan was taken. If construction exceeds this period, the deduction is limited to just ₹30,000. For properties that are rented out (let-out), there is no upper limit on the interest amount you can claim as a deduction against rental income.
The Affordable Housing Bonus: Section 80EEA
First-time homebuyers who purchased an affordable property might have access to an additional deduction under Section 80EEA. This section provides an extra interest deduction of up to ₹1.5 lakh, over and above the ₹2 lakh limit of Section 24(b). However, this benefit has a crucial catch: it is only applicable for home loans sanctioned between April 1, 2019, and March 31, 2022. If your loan was approved within this window and you meet other conditions—such as the property's stamp value not exceeding ₹45 lakh and you not owning any other residential property at the time of loan sanction—you can continue to claim this benefit until the loan is fully repaid. This deduction is not available for new loans taken after March 2022 or under the new tax regime.
Joint Home Loans: Doubling the Benefit
Taking a home loan jointly with a spouse or family member can significantly increase your tax savings, provided both are co-owners of the property. In a joint loan, each co-borrower can individually claim a deduction of up to ₹2 lakh on interest under Section 24(b) and up to ₹1.5 lakh on principal repayment under Section 80C in their respective tax returns. This effectively doubles the potential tax benefits for the household, making it a powerful financial planning tool for couples.
Documents and How to Claim
To claim these deductions, you don't need to attach documents with your ITR filing, but you must keep them handy in case of scrutiny from the tax department. The most important document is the interest certificate from your bank or lending institution, which details the principal and interest paid during the financial year. When filing your ITR under the old regime, declare the principal repayment under the Section 80C deductions section and the interest paid under the 'Income from House Property' schedule.
