Tax Benefits on Home Loan: Guide to Section 80C & 24(b) Deductions

A Home Loan not only helps you buy your dream home but also offers attractive financial advantages through tax savings. Under the Income Tax Act, 1961, borrowers can avail significant income tax benefit on home loan repayments. You can claim a deduction of up to ₹1.5 lakh per financial year on the principal amount under Section 80C, and up to ₹2 lakh on the interest paid under Section 24(b). These benefits make Home Loans a smart option for both homeownership and tax planning.

Let’s understand the various tax benefits on Home Loans that you can avail that help you lower your tax outgo.

Tax Benefit on Principal Amount of Home Loan

The EMI you pay towards your Home Loan has two components - principal and interest. Home Loan income tax rebate is allowed on both these components. Under section 80C of the Income Tax Act, 1961, you can enjoy a maximum tax rebate of INR 1.5 lakhs on Home Loan principal.

It’s essential to note that investment in other financial instruments such as public provident fund (PPF), tax-savings fixed deposits, national savings certificate, etc., also qualify for tax exemption under section 80C. The combined limit of all the deductions is INR 1.5 lakhs.

You can claim tax benefit on the principal amount of Home Loan on a payment basis, irrespective of the year for which you have made the payment.

Conditions to Claim Tax Benefit on Home Loan Principal

While Section 80C deduction allows you to claim an income tax benefit on home loan principal repayment, there are specific conditions for home loan tax benefit eligibility that every borrower must be aware of.

1. Construction Completion Requirement

To avail home loan tax benefit under Section 80C, the principal repayment qualifies for deduction only after the construction of the house is complete. Any payments made while the property is still under construction are not eligible for housing loan tax benefit on the principal amount.

2. 5-Year Holding Clause

Another important condition for claiming tax benefit on home loan principal is the minimum holding period. If the property is sold within 5 years from the end of the financial year in which possession was obtained, the income tax benefit on home loan claimed earlier under Section 80C will be reversed. The total amount claimed in previous years will be added to your taxable income in the year of sale, potentially increasing your tax liability.

Tax Benefit on Home Loan Interest

Now, let’s understand the tax benefit on Home Loan interest you can receive under section 24 of the Income Tax Act, 1961. The maximum deduction on Home Loan interest you are entitled to is INR 2 lakhs. An essential thing to note is that tax benefit on Home Loan interest is available on a payable basis. It means even if you’ve not made any payment during the year, you can claim tax benefit.

Things to Note

Note that if the property is not completed within 5 years from the end of the fiscal in which you have taken the loan, the quantum of interest benefit comes down drastically to INR 30,000 from INR 2 lakhs.

The table below summarises the tax benefits on Home Loans under section 80C and 24:

Tax Benefit on Home Loan for First-time Buyers

If you're buying your first home, you can enjoy extra home loan tax benefit beyond the standard deductions. The government offers an income tax benefit on home loan interest through Section 80EE and Section 80EEA, helping first-time buyers reduce their tax liability.

Eligibility Criteria Under Section 80EEA

Under Section 80EEA, you can claim an additional deduction of ₹50,000 on interest paid—over and above ₹2 lakh allowed under Section 24(b). To avail this tax benefit on home loan for first-time buyers, the following conditions must be met:

• You must be a first-time home buyer (no ownership of residential property at the time of sanction).
• The stamp duty value of the property should not exceed ₹45 lakh.
• The home loan must be sanctioned between 1st April 2019 and 31st March 2022.
• The loan must be taken from a recognized financial institution.

These additional benefits make homeownership more affordable for first-time buyers while offering long-term tax savings.

Understanding Section 80EE

Section 80EE is designed to offer tax relief to first-time homebuyers opting for affordable housing.

Here’s what you need to know:

• Available for loans sanctioned between April 1, 2016, and March 31, 2017
• Offers an additional deduction of up to ₹50,000 per financial year on interest paid
• The home loan amount must not exceed ₹35 lakh
• The property value must not exceed ₹50 lakh
• You should not own any other residential property at the time of loan sanction

This deduction is over and above the ₹2 lakh limit under Section 24(b), providing a valuable income tax benefit on home loan interest.

Benefits Under Section 80EEA

To further support housing affordability, the government introduced Section 80EEA, extending the benefit to a wider set of homebuyers.

Here’s a quick overview:

• Applicable for loans sanctioned between April 1, 2019, and March 31, 2022
• Offers an additional deduction of up to ₹1.5 lakh per year on interest payments
• The stamp duty value of the property should not exceed ₹45 lakh
• You must not have claimed benefits under Section 80EE
• The homebuyer must be a first-time owner at the time of loan approval
• The loan should be from a recognised financial institution or housing finance company

When clubbed with Section 24(b), this allows for a total home loan interest tax benefit of up to ₹3.5 lakh annually.

You can use Home Loan income tax benefit calculators available online to know the deduction you can claim towards your loan.

Things to Note While Opting for Home Loans

Now that you know the tax benefits on Home Loans, you need to be mindful of certain things before availing this all-important loan. Note that Home Loans are long-term commitments, and hence you must judiciously choose your lender. Before signing the loan papers, factor in the:

• Lender’s reputation

• Rate of interest on offer

• Repayment flexibility

• Sanction and disbursal process

• Eligibility criteria

• Facilities such as parallel funding

Also read the fine print carefully to know the various costs to make a well-informed decision.

FAQs

Q.1. Can I claim both Section 24(b) and Section 80EEA?

A. Yes, you can claim both Section 24(b) and Section 80EEA if you meet the conditions. Section 24(b) allows a deduction of up to ₹2 lakh on interest paid, and Section 80EEA offers an additional deduction of up to ₹1.5 lakh on home loan interest for first-time homebuyers. However, 80EEA cannot be claimed if you've already claimed deduction under Section 80EE.

Q.2. How much tax benefit is available under Section 80D?

A. Section 80D is related to health insurance premiums, not home loans. You can claim up to ₹25,000 (₹50,000 for senior citizens) for premiums paid. It does not apply to housing loan deductions.

Q.3. What is the limit of Section 24(b) exemption?

A. Under Section 24(b), you can claim up to ₹2 lakh per financial year on the interest paid on your home loan, provided the property is self-occupied and the construction is completed within 5 years.

Q.4. How much of the home loan EMI is tax-free?

A. The principal component of your EMI qualifies for deduction under Section 80C (up to ₹1.5 lakh), and the interest component qualifies under Section 24(b) (up to ₹2 lakh). Together, parts of your EMI can help reduce your taxable income significantly.

Q.5. Can I claim both HRA and home loan benefits?

A. Yes, you can claim both HRA (House Rent Allowance) and home loan deductions if you live in a rented house while paying EMIs for a house in another city or under construction. You must meet specific conditions and provide appropriate documentation.

Disclaimer:

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