A home loan is a significant financial commitment, but it comes with its own set of benefits—especially when it comes to saving on taxes. Whether you’re a first-time homebuyer or you’ve already purchased your dream home, understanding how to claim tax benefits on your home loan can help reduce your tax liability and put more money back in your pocket.

In India, the Income Tax Act provides tax deductions for both principal and interest repayments on home loans under different sections. These benefits make home loans a popular choice for individuals looking to save on taxes while also investing in property.

In this guide, we’ll explain the various ways you can claim tax benefits on your home loan, helping you maximize your savings.

Tax Benefits on Home Loan: Key Sections of the Income Tax Act

To claim tax benefits on your home loan, it’s important to know the sections under which you can avail of these benefits. The main sections that provide tax deductions for home loan repayments are:

• Section 80C: This section allows for deductions on the principal repayment of the home loan.
• Section 24(b): This section covers deductions on the interest paid on home loans.
• Section 80EE: This section provides an additional deduction for first-time homebuyers.

Let’s take a closer look at each of these tax-saving provisions.

1. Section 80C: Deduction on Principal Repayment

Under Section 80C, you can claim a tax deduction of up to ₹1.5 lakh per year on the principal amount repaid on your home loan. This deduction is available to both individuals and Hindu Undivided Families (HUFs) who have taken a home loan for the purchase or construction of their property.

Eligibility Criteria:

• The deduction is available only if the home loan is for the purchase or construction of a new house.
• The property should be in your name, and you should be the borrower.
• You can claim this deduction only for the repayment of the principal portion of the loan, not the interest portion.

How It Saves Taxes: If you are repaying the principal amount of your home loan, you can reduce your taxable income by up to ₹1.5 lakh per year, thereby lowering your overall tax liability. This deduction is part of the overall ₹1.5 lakh limit under Section 80C, which also includes other investments like PPF, ELSS, and life insurance premiums.

2. Section 24(b): Deduction on Interest Paid

One of the biggest tax benefits of a home loan comes from the deduction on the interest paid. Under Section 24(b), you can claim a deduction of up to ₹2 lakh per year on the interest paid on your home loan. This deduction is applicable to both self-occupied properties and properties that are let out.

Eligibility Criteria:

• The home loan must be for the purchase, construction, or renovation of the property.
• The property should be in your name.
• The home loan must be used specifically for the purchase or construction of the property (not for other purposes).

How It Saves Taxes: The interest paid on the home loan is deductible from your taxable income, which means you can reduce your overall tax liability by up to ₹2 lakh per year. This deduction is available for both new and existing home loans and is particularly beneficial for those with large home loan amounts.

For properties that are rented out, the full interest paid on the home loan is allowed as a deduction under Section 24(b).

3. Section 80EE: Additional Deduction for First-Time Homebuyers

If you’re a first-time homebuyer, there is an additional benefit under Section 80EE. This section provides an extra deduction of up to ₹50,000 per year on the interest paid on a home loan for the purchase of a residential property.

Eligibility Criteria:

• The loan must be sanctioned between April 1, 2016, and March 31, 2022.
• The loan amount should not exceed ₹35 lakh, and the value of the property should not exceed ₹50 lakh.
• The taxpayer should not own any other residential property on the date of sanctioning the loan.

How It Saves Taxes: By claiming an additional ₹50,000 deduction on the interest paid under Section 80EE, first-time homebuyers can further reduce their taxable income, which translates into more tax savings. This deduction is over and above the ₹2 lakh deduction available under Section 24(b).

4. Section 80EEA: Additional Deduction for Affordable Housing

For those purchasing affordable housing, Section 80EEA offers another tax-saving opportunity. Under this section, you can claim an additional deduction of up to ₹1.5 lakh per year on the interest paid on home loans taken for affordable housing.

Eligibility Criteria:

• The loan must be sanctioned between April 1, 2019, and March 31, 2021.
• The value of the property should not exceed ₹45 lakh.
• The taxpayer should not have claimed a deduction under Section 80EE.

How It Saves Taxes: This section provides an additional deduction of up to ₹1.5 lakh, which helps homebuyers save significantly on tax. This benefit is especially beneficial for those who are buying affordable housing and meeting the eligibility criteria.

Key Points to Remember When Claiming Tax Benefits on Home Loans

• Joint Home Loans: If you have taken a joint home loan with your spouse or a family member, both parties can claim tax benefits on the interest and principal repayment individually. However, the total deduction cannot exceed the limits mentioned under Section 80C and Section 24(b).
• Pre-Construction Interest: If you’re still in the construction phase of your home, you can claim a deduction on the interest paid during the pre-construction period. The total interest can be claimed in 5 equal installments starting from the year the construction is completed.
• Self-Occupied and Let-Out Properties: The tax benefits for self-occupied and rented properties differ. For self-occupied properties, you can claim up to ₹2 lakh for interest under Section 24(b), while for rented properties, the entire interest can be claimed as a deduction.

Conclusion: Maximize Your Tax Benefits on Home Loans

Claiming tax benefits on home loans is one of the most effective ways to reduce your taxable income and save money on taxes. By utilizing Section 80C, Section 24(b), Section 80EE, and Section 80EEA, you can enjoy multiple tax-saving opportunities while repaying your home loan.