Tax Benefits on Home Loans 2025-26: A Complete Guide for Homebuyers

Tax Benefits on Home Loans: A Complete Guide for Homebuyers

Buying a home is one of the biggest financial decisions in life. Fortunately, the government of India offers multiple tax benefits on home loans, allowing you to save significantly while repaying your home loan. Understanding these deductions can help you plan your finances better and make the most of your home loan interest tax benefits under the Income Tax Act.

Understanding these home loan interest deductions and related sections like Section 24(b) and Section 80C can help you save thousands, sometimes even lakhs, every year. In this guide, we’ll break down the different types of home loan tax benefits, eligibility criteria, and the maximum deductions you can claim, so you can make the most of your investment and plan your taxes wisely.

What are the Repayment Components of a Home Loan?

When you take a home loan, your monthly repayment (EMI) is divided into two main parts: Principal and Interest. Understanding these components is key to knowing how home loan deductions in income tax work.

1. Principal Component
   
   • This is the amount borrowed from the lender to purchase, construct, or renovate your home.
     
   • The repayment of the principal portion qualifies for tax deduction under Section 80C of the Income Tax Act.
     
   • You can claim a maximum deduction of ₹1.5 lakh per financial year on the principal amount, provided the property’s construction is complete and possession is obtained.
     
2. Interest Component
   
   • This is the cost you pay to the lender for borrowing the loan amount.
     
   • The interest on home loan deduction can be claimed under Section 24(b).
     
   • For self-occupied property, the maximum deduction allowed is ₹2 lakh per annum, while for let-out property, there is no upper limit (though the overall loss from house property is capped at ₹2 lakh).
     

Together, these two components, principal and interest, form your EMI and determine the total home loan tax benefit you can claim each year.

What are the Important Conditions for Claiming Tax Benefits?

To avail of the home loan tax benefits, certain conditions that are laid by the Income Tax Act must be met. These ensure that the deduction is claimed correctly and only by eligible taxpayers. Below are the key conditions you should be aware of before claiming your home loan deduction in income tax;

1. Purpose of the Loan
   
   • The loan must be taken for the purchase, construction, repair, or renovation of a residential property.
     
   • Loans taken for commercial properties or land purchase are not eligible for the home loan tax exemption.
     
2. Source of the Loan
   
   • The loan should be taken from recognised financial institutions, banks, housing finance companies, or approved employers.
     
   • Loans from friends or relatives do not qualify for the interest on housing loan deduction under Section 24(b).
     
3. Completion of Construction
   
   • Construction of the property should be completed within 5 years from the end of the financial year in which the loan was taken.
     
   • Deductions on home loan interest can only be claimed after completion or possession of the property.
     
4. Ownership of the Property
   
   • The taxpayer must be the legal owner or co-owner of the property to claim home loan tax benefits.
     
   • In the case of a joint loan, both co-owners can claim deductions individually, provided both are co-borrowers.
     
5. Possession Requirement
   
   • Tax deduction on home loan interest (Section 24) and principal repayment under Section 80C can only be claimed after possession of the property is received.
     
6. No Sale Within 5 Years
   
   • The property should not be sold within five years from the end of the financial year in which possession was obtained.
     
   • If sold earlier, any deduction claimed under Section 80C will be reversed in that year.
     

By meeting these conditions, you ensure your claim for home loan interest deduction and principal repayment benefit is fully compliant and maximises your eligible savings under the law.

Home Loan Tax Benefits Under Different Sections

When you take a home loan, the Indian Income Tax Act offers multiple provisions that allow you to claim deductions on both the principal and interest components. These benefits are spread across different sections, Section 24(b), Section 80C, and Section 80EEA—each with its own eligibility criteria, conditions, and maximum deduction limits. Let’s understand them :

1. Section 24(b) – Deduction on Interest Paid

Under Section 24(b) of the Income Tax Act, you can claim a deduction on the interest paid on a housing loan.

• Maximum Deduction: ₹2,00,000 per annum (for self-occupied property).
  
• For let-out property, there is no upper limit; however, the overall loss from house property is capped at ₹2,00,000.
  
• The loan should be taken for purchase, construction, or repair of a property.
  

2. Section 80C – Deduction on Principal Repayment

Section 80C allows you to claim a deduction for the principal portion of your home loan EMIs.

• Maximum Deduction: ₹1,50,000 per annum.
  
• Eligible only after possession of the property.
  
• The property should not be sold within 5 years of possession; otherwise, the deduction claimed will be reversed.
  

3. Section 80EEA – Additional Deduction for First-Time Home Buyers

Section 80EEA provides extra relief to first-time buyers over and above Section 24(b).

• Maximum Deduction: ₹1,50,000 on home loan interest.
  
• The stamp duty value of the house should not exceed ₹45 lakhs.
  
• The loan must be sanctioned between April 1, 2019, and March 31, 2022.
  
• The taxpayer should not own any other residential property at the time of loan sanction.

Summary of Home Loan Tax Benefits Under Various Sections

Section	Nature of Deduction	Maximum Deduction	Eligibility/ Key Components
Section 24(b)	Interest on home loan	₹2,00,000 (self-occupied); No limit for let-out	Property must be completed within 5years; possession required
Section 80C	Principal repayment	₹1,50,000	Property should not be sold within 5 years; deduction only after possession
Section 80EEA	Additional deduction on interest(first-time buyers	₹1,50,000	Property value ≤ ₹45 lakhs; first-time homeowner; loan sanctioned between Apr 2019–Mar 2022

By combining Section 24(b) and Section 80C, you can claim up to ₹3.5 lakhs in total annual deductions. And if you qualify under Section 80EEA, your savings can go even higher, making it a great opportunity to optimise your home loan interest tax benefits and reduce your overall tax liability.

Income Tax Benefit on Home Loan

A home loan not only helps you fulfil your dream of owning a house but also provides valuable income tax benefits that reduce your annual tax outgo. The government encourages home ownership by offering deductions on both principal and interest portions of the loan under various sections of the Income Tax Act.

Tax Benefits on Home Loan Under Section 80C

Under Section 80C, you can claim a deduction on the principal repayment portion of your home loan EMI. This section also includes other eligible investments such as PPF, ELSS, and life insurance premiums, but the total combined limit remains ₹1.5 lakh per financial year.

Key Points:

• Maximum Deduction: ₹1,50,000 per year.
  
• Eligible Payment: Only the principal component of the EMI.
  
• Condition:
  
  • The property’s construction or purchase must be completed before claiming this benefit.
    
  • The property must not be sold within 5 years from the end of the financial year in which possession was obtained.
    
  • If sold earlier, the previously claimed deductions are reversed and added back to taxable income.
    
• Applicable Property: Both self-occupied and let-out properties are eligible.
  

This deduction not only reduces your taxable income but also motivates long-term home ownership and financial discipline.

Housing Loan Tax Benefits Under Section 80EE

Section 80EE provides an additional deduction on home loan interest for first-time homebuyers. This benefit is available over and above Section 24(b) and helps individuals reduce their tax liability further.

Key Highlights:

• Maximum Deduction: ₹50,000 per year.
  
• Eligibility Conditions:
  
  • The loan must be sanctioned between April 1, 2016, and March 31, 2017.
    
  • The loan amount should not exceed ₹35 lakhs, and the property’s value should not exceed ₹50 lakhs.
    
  • The taxpayer should not own any other residential property at the time of sanction.
    
• Additional Benefit: This deduction is in addition to ₹2,00,000 under Section 24(b) for interest payment.
  

Although this section applies to older loans sanctioned during the specified period, it played a key role in encouraging first-time buyers to enter the housing market.

Together, Section 80C, Section 24(b), and Section 80EE (or 80EEA) create a powerful tax-saving opportunity. By leveraging them wisely, you can significantly lower your annual tax burden while steadily building your most valuable asset — your home.

Tax Deduction for Joint Home Loan Example Calculations for Self

Taking a joint home loan — usually with your spouse, parent, or sibling — doesn’t just make it easier to qualify for a higher loan amount; it also doubles your tax-saving potential. When two or more individuals are co-owners and co-borrowers of a property, each can claim home loan tax benefits individually, provided certain conditions are met.

Both the principal and interest components of the loan qualify for tax deductions, offering a smart way to reduce total tax liability. Let’s break down how deductions work under each applicable section.

1. Section 24(b) – Deduction on Interest Payment

This section allows a deduction on the interest paid towards a home loan. In the case of a joint loan, each co-borrower can claim the deduction separately.

• Component Covered: Interest on home loan.
  
• Maximum Deduction: Up to ₹2,00,000 per person (for self-occupied property).
  
  • For let-out properties, there is no upper limit on interest deduction; however, the loss that can be set off against other income is capped at ₹2,00,000 per year.
    
• Conditions:
  
  • Both applicants must be co-owners of the property and co-borrowers of the home loan.
    
  • The loan must be taken for purchase, construction, or repair of a residential property.
    
  • Deduction can be claimed only after possession or completion of the property.
    
  • If construction is not completed within 5 years, the deduction limit reduces to ₹30,000 per person.
    

Example:
If both spouses jointly pay ₹4,00,000 as interest, each can claim ₹2,00,000 under Section 24(b), bringing the total claim to ₹4,00,000 combined.

2. Section 80C – Deduction on Principal Repayment

Under Section 80C, both co-borrowers can claim deductions for the principal portion of their EMIs.

• Component Covered: Principal repayment of the home loan.
  
• Maximum Deduction: Up to ₹1,50,000 per person per financial year.
  
• Conditions:
  
  • Both individuals must be co-owners and co-borrowers.
    
  • The deduction is allowed only after construction is complete or the property is handed over.
    
  • The property should not be sold within 5 years from the end of the financial year of possession.
    
  • If sold before 5 years, the deductions claimed earlier will be reversed and added to taxable income.
    

Example:
If the couple pays ₹2,40,000 as total principal repayment, each can claim ₹1,20,000 under Section 80C (subject to the overall limit of ₹1.5 lakh per person).

3. Section 80EE – Additional Deduction for First-Time Buyers

Section 80EE provides extra relief on the interest component for first-time homebuyers, over and above Section 24(b).

• Component Covered: Interest on home loan.
  
• Maximum Deduction: ₹50,000 per person.
  
• Conditions:
  
  • The loan must have been sanctioned between April 1, 2016, and March 31, 2017.
    
  • The loan amount should not exceed ₹35 lakhs, and the property’s value should not exceed ₹50 lakhs.
    
  • The taxpayer should not own any other property at the time of loan sanction.
    
• Special Note:
  
  • Both co-owners can claim this deduction if they individually meet the first-time buyer condition.
    

Example:
If both borrowers qualify, each claims ₹50,000 under Section 80EE, totalling ₹1,00,000 as an additional deduction.

4. Section 80EEA – Extended Benefit for Affordable Housing

Section 80EEA offers an additional deduction on interest paid for loans taken under the affordable housing category. It’s designed for first-time buyers who missed the Section 80EE window.

• Component Covered: Interest on home loan.
  
• Maximum Deduction: ₹1,50,000 per person.
  
• Conditions:
  
  • The taxpayer must be a first-time homebuyer.
    
  • The stamp duty value of the property should not exceed ₹45 lakhs.
    
  • The loan must be sanctioned between April 1, 2019, and March 31, 2022.
    
  • The taxpayer should not own any other residential property when the loan is sanctioned.
    
  • The deduction can be claimed in addition to Section 24(b), but not with Section 80EE.
    

Example:
If both co-borrowers meet the eligibility criteria, each can claim ₹1,50,000 under Section 80EEA, doubling the total deduction to ₹3,00,000 on top of Section 24(b) benefits.

Summary of Joint Home Loan Tax Deductions

Section	Component Covered	Maximum Deduction	Key Conditions
Section 24(b)	Interest on home loan	₹2,00,000 (self-occupied) / No limit (let-out)	Must be co-owner & co-borrower; possession required
Section 80C	Principal repayment	₹1,50,000	Property should not be sold within 5 years
Section 80EE	Additional interest deduction	₹50,000	Loan sanctioned FY 2016–17; first-time buyer
Section 80EEA	Additional interest deduction	₹1,50,000	Property ≤ ₹45 lakhs; first-time buyer; loan sanctioned FY 2019–22

By opting for a joint home loan, co-owners can together claim up to ₹7 lakhs or more in annual deductions, significantly reducing their taxable income. This makes joint ownership not only a wise financial decision but also a highly efficient tax-saving strategy for families planning long-term home investments.

How to Claim Tax Benefits on Self-Occupied Home: Example Calculation

Let’s assume you have taken a home loan for your self-occupied property with the following details:

• Principal Amount: ₹40,00,000
  
• Interest Rate: 8.5% per annum
  
• Tenure: 20 years
  
• EMI: ₹34,782 per month
  
• Annual Interest Paid: ₹2,80,000
  
• Principal Repaid (Annual): ₹1,35,000

Now, here’s how your tax deduction works:

Component	Section	Maximum Deduction Allowed	Amount You Can Claim
Interest paid	24(b)	₹2,00,000	₹2,00,000
Principal Paid	80C	₹1,50,000	₹1,35,000
Total Deduction			₹3,35,000

Tax Benefit: You can claim a total deduction of 3.35 lakh in a financial year for your self-occupied property.

How to Claim Tax Benefits on Let-Out Home: Example Calculation

Suppose you have taken a home loan for a rented property, with the following details:

• Loan Amount: ₹50,00,000
  
• Interest Rate: 8.5% per annum
  
• Annual Interest Paid: ₹4,25,000
  
• Principal Repaid (Annual): ₹1,50,000
  
• Rent Received (Annual): ₹2,40,000
  
• Municipal Taxes Paid: ₹20,000
  

Step-by-Step Calculation:

1. Net Annual Value (NAV): ₹2,40,000 – ₹20,000 = ₹2,20,000
   
2. Less: 30% Standard Deduction: ₹66,000
   
3. Less: Interest on Home Loan (Sec 24b): ₹4,25,000
   

Net Income from House Property: ₹2,20,000 – ₹66,000 – ₹4,25,000 = –₹2,71,000 (Loss)

This loss can be set off against your other income (salary, business, etc.) up to ₹2,00,000, while the remaining ₹71,000 can be carried forward for up to 8 assessment years.

Maximize Home Loan Tax Benefits — A Quick Recap & Next Steps

Understanding how home loan tax benefits work can make a significant difference in your yearly savings. Whether your property is self-occupied or let-out, Whether your property is self-occupied or let-out, each section of the Income Tax Act offers unique advantages that can help you reduce your taxable income.

Let us quickly revisit the key takeaways and see how you can make the most of them.

Owning a home not only fulfils your dream of stability but also provides significant tax advantages. Whether it’s a self-occupied property or a rental one, understanding how to claim deductions under Sections 24(b), 80C, 80EE, and 80EEA can help you maximise your savings and minimise your tax burden.

Pro Tip: Always maintain your home loan statement, interest certificate, and property documents to ensure smooth claim processing.

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Frequently Asked Questions (FAQs)

1. Who can claim tax deductions on housing loans?
Any individual who has taken a home loan for purchasing, constructing, or renovating a residential property can claim tax deductions. The borrower must be both the owner and repayer of the loan to be eligible for benefits.

2. How many self-occupied properties can I claim for tax benefits?
As per the latest tax rules, you can claim tax benefits for up to two self-occupied properties. Earlier, only one property was allowed. However, the total interest deduction limit under Section 24(b) for both remains ₹2 lakh per annum.

3. Can I claim both Section 24(b) and Section 80C?
Yes, you can. Section 24(b) allows deductions on the interest paid on the home loan, while Section 80C covers deductions on the principal repayment. You can claim both simultaneously for the same property if you meet the eligibility criteria.

4. Can I claim benefits under both Section 24(b) and Section 80EEA?
Yes, you can claim both, provided you meet the conditions under each section. Section 80EEA offers an additional deduction of ₹1.5 lakh on interest for first-time homebuyers, over and above the ₹2 lakh limit under Section 24(b).

5. What is the limit of home loan interest in income tax?
Under Section 24(b), the maximum deduction allowed for interest paid on a self-occupied home is ₹2 lakh per year. For let-out or rented properties, there is no upper limit, though the total loss from house property that can be set off against other income is capped at ₹2 lakh.

6. Are there any tax benefits on a second home loan?
Yes. You can claim tax deductions on a second home loan as well. The interest portion can be claimed under Section 24(b), and the principal repayment under Section 80C — subject to the overall limits and conditions.

7. Is interest on a home loan deductible under Section 24?
Absolutely. Section 24(b) allows deduction on interest paid on home loans taken for purchase, construction, repair, or renovation of a property. The deduction limit depends on whether the property is self-occupied or let out.