Home Loan Tax Benefits: Save Up to ₹5 Lakh Per Year Under These Rules

What You Need to Know

Buying a home is a dream come true for many Indians, but it often comes with a hefty price tag. Thankfully, the government offers significant tax benefits to ease this financial burden. Whether you're a first-time homebuyer or looking to invest in a second property, understanding these tax benefits can save you lakhs of rupees over the life of your loan.

Tax Benefits: Old vs New Regime

Before diving into specific deductions, it's crucial to understand that your choice of tax regime significantly impacts available benefits. The old regime generally offers more comprehensive home loan deductions, while the new regime provides lower tax rates but fewer deductions.

Interest Deduction (Section 24b)

Under Old Tax Regime:

• Claim up to ₹2,00,000 annually on self-occupied property
• No upper limit for let-out properties (claim entire interest paid)
• Pre-construction interest can be claimed in 5 equal installments after completion

Under New Tax Regime:

• No deduction for self-occupied properties
• Deduction available only for let-out properties
• Excess losses can be carried forward for 8 years

Real-Life Example: Rohit purchased a ₹75 lakh apartment in Mumbai with a ₹60 lakh home loan at 8.5% interest. In the first year, he paid ₹5 lakh as interest. Under the old regime, he can claim ₹2 lakh as deduction for his self-occupied property, reducing his taxable income significantly.

Principal Repayment (Section 80C)

Under Old Tax Regime:

• Deduction up to ₹1,50,000 annually
• Includes principal repayment, stamp duty, and registration charges
• Shared with other tax-saving investments like PPF, ELSS, etc.

Under New Tax Regime:

• No deductions available

Important Note: If you sell your property within 5 years of possession, all claimed deductions may be added back to your taxable income in the year of sale.

Real-Life Example: Priya and Amit bought a ₹50 lakh home in Pune with a ₹40 lakh loan. In the first year, they paid ₹1,20,000 toward principal repayment and ₹50,000 for stamp duty and registration. Under the old regime, they can claim the entire ₹1,50,000 under Section 80C, saving approximately ₹45,000 in taxes (assuming 30% tax bracket).

Extra Benefits for First-Time Homebuyers

Additional Interest Deduction (Section 80EE)

• Extra deduction up to ₹50,000 annually (beyond Section 24b limit)
• Applicable only if loan was sanctioned between April 1, 2016, and March 31, 2017
• Loan amount must not exceed ₹35 lakh
• Property value must not exceed ₹50 lakh
• You must not own any other residential property when taking the loan

Affordable Housing Benefit (Section 80EEA)

• Additional deduction up to ₹1,50,000 annually
• Loan must be sanctioned between April 1, 2019, and March 31, 2022
• Property value must not exceed ₹45 lakh
• Must be your first residential property
• Not eligible if claiming Section 80EE benefits

Important: Neither Section 80EE nor 80EEA deductions are available under the new tax regime.

Smart Tax Planning with Joint Home Loans

Taking a joint home loan with a family member can multiply your tax benefits. Each co-borrower can claim deductions individually based on their ownership share.

Real-Life Example: Deepak and Sunita, a married couple, purchased a ₹90 lakh property in Bangalore with a joint loan of ₹70 lakh. Both are co-owners with equal share and in the 30% tax bracket. In the first year:

• Each can claim up to ₹2,00,000 under Section 24b (total ₹4,00,000)
• Each can claim up to ₹1,50,000 under Section 80C (total ₹3,00,000)
• Combined potential tax saving: ₹2,10,000 annually (₹7,00,000 × 30%)

Special Cases Worth Knowing

NRI Home Loans

Non-Resident Indians can claim the same tax benefits as residents for properties in India, provided they file their income tax returns in India.

Let-Out Property Benefits

• If your property is rented out, you can claim the entire interest amount
• Resulting losses (up to ₹2,00,000) can be set off against other income
• Excess losses can be carried forward for 8 years

Pre-Construction Interest

Interest paid before property completion can be claimed in 5 equal installments starting from the year of completion.

Real-Life Example: Karan paid ₹2,50,000 as interest during the construction of his apartment, which was completed in FY 2024-25. He can claim ₹50,000 annually from FY 2024-25 to FY 2028-29, in addition to regular interest deductions.

Budget 2025 Updates

Despite some reports suggesting an increase in the Section 24b limit to ₹3,00,000, official sources confirm it remains at ₹2,00,000 for self-occupied properties.

Other relevant updates from Budget 2025:

• Increased tax rebate under the new tax regime: No income tax for individuals with income up to ₹12,00,000 (₹12,75,000 for salaried individuals)
• Now any two properties can be considered self-occupied, removing tax liability on notional rental income for a second home

How to Maximize Your Home Loan Tax Benefits

1. Choose the right tax regime: Calculate your total deductions under both regimes to determine which offers more savings.
2. Consider joint loans: Multiple co-owners can multiply available deductions.
3. Time your property purchase: Ensure completion within 5 years of loan sanction to maximize interest deductions.
4. Maintain proper documentation: Keep home loan statements, payment receipts, and completion certificates.
5. Consult a tax advisor: Home loan tax benefits are complex and change frequently. Professional guidance ensures you don't miss out on any benefits.

Conclusion

Home loan tax benefits in 2025 offer substantial savings for property owners, particularly under the old tax regime. By understanding the various deductions available under Sections 24b, 80C, 80EE, and 80EEA, you can significantly reduce your tax liability while achieving your dream of homeownership. Remember to evaluate both tax regimes carefully and consult a tax professional to optimize your benefits.

Frequently Asked Questions

Can I claim home loan tax benefits in both old and new tax regimes?
No, you must choose one regime for the entire financial year.

Is there any tax benefit on home loan insurance premium?
Yes, it's eligible for deduction under Section 80C within the overall limit of ₹1,50,000.

Can I claim HRA exemption while also claiming home loan benefits?
Yes, if you live in a rented house while owning a house in another city.

What if my home loan interest exceeds the ₹2,00,000 limit?
For self-occupied property, excess interest isn't deductible; for let-out property, entire interest is deductible.

Can both husband and wife claim tax benefits on a joint home loan?
Yes, if both are co-borrowers and co-owners with defined ownership shares.

Are home loan processing fees eligible for tax benefits?
No, processing fees aren't eligible for any tax deduction.

What documents do I need to claim home loan tax benefits?
Loan statements, interest certificates, possession certificate, and proof of repayment.

Can I claim tax benefits on multiple home loans?
Yes, but Section 24b deduction is limited to ₹2,00,000 for all self-occupied properties combined.