Home Loan Tax Benefit – How to Save Income Tax on Your Home Loan?

Buying your own home is a big dream for many Indians. With the help of a home loan, that dream becomes possible. But did you know that your home loan can also help you save a lot of money on income tax?

In this blog, we will explain how you can get tax benefits on your home loan, what sections of the Income Tax Act you need to know, and how much you can save. We’ll keep the language simple so everyone can understand.

What is a Home Loan?

A home loan is money borrowed from a bank or financial institution to buy, build, or renovate a house. You repay this amount (called the principal) with interest in monthly installments (EMIs) over a period of time, usually 10 to 30 years.

The good news is that the government of India gives tax benefits on both the principal and interest portions of your home loan.

Why Do You Get Tax Benefits on a Home Loan?

The government encourages people to invest in their own homes. To promote this, the Income Tax Act offers tax deductions on home loan repayment. This means you can reduce your taxable income, and pay less tax.

Main Sections of the Income Tax Act for Home Loan Tax Benefits

There are 4 main sections you should know:

Section	Tax Benefit On	Maximum Deduction (per year)	Conditions
80C	Principal repayment	₹1,50,000	House must not be sold within 5 years
24(b)	Interest on loan	₹2,00,000 (for self-occupied)	Completion certificate must be available
80EE	Additional interest	₹50,000	First-time home buyer (loan up to ₹35 lakh)
80EEA	Additional interest	₹1,50,000	Under affordable housing (loan sanctioned between April 2019 - March 2022)

Let’s now look at each of these in detail.

Section 80C – Tax Benefit on Principal Repayment

You can claim a deduction of up to ₹1.5 lakh under Section 80C for the principal portion of your home loan EMI.

Conditions:

The property must be fully constructed.
You should not sell the property within 5 years of possession.
If sold before 5 years, the tax benefit claimed earlier will be reversed.

Other Payments Covered:

Stamp duty
Registration charges (only in the year of purchase)

Note: The ₹1.5 lakh limit under 80C also includes other investments like PF, PPF, ELSS, Life Insurance, etc.

Section 24(b) – Tax Benefit on Interest Payment

Under Section 24(b), you can claim a deduction of up to ₹2 lakh per year on the interest paid on your home loan if:

The house is self-occupied
The construction is completed within 5 years

If the house is not self-occupied (rented or vacant), the entire interest (with no limit) was earlier allowed. However, from FY 2017-18, you can claim only ₹2 lakh of loss under the head “Income from house property” in one financial year. The rest is carried forward for up to 8 years.

Pre-construction Interest:

If you started paying interest before the construction of the house was completed, you can claim that interest in 5 equal installments from the year the construction is completed.

Example:

You paid ₹3 lakh interest before construction.
After completion, you can claim ₹60,000 per year (for 5 years) in addition to your regular interest.

Section 80EE – Additional Tax Benefit for First-Time Home Buyers

This section is for first-time home buyers who took a loan between April 1, 2016, and March 31, 2017.

Eligibility Conditions:

Loan amount must be less than ₹35 lakh
Property value must be less than ₹50 lakh
You must not own any other house on the date of sanction

Tax Benefit:

You can claim up to ₹50,000 extra on interest paid, in addition to Section 24(b).

Section 80EEA – For Affordable Housing (Loan Sanctioned Between 2019–2022)

To promote affordable housing, the government introduced this section.

Eligibility Conditions:

Loan must be sanctioned between 1st April 2019 to 31st March 2022
Stamp duty value of house must be below ₹45 lakh
You should not be claiming benefits under 80EE
You should not own any other house

Tax Benefit:

You can claim up to ₹1.5 lakh extra on interest, over and above the ₹2 lakh under Section 24(b).

How Much Can You Save in Total?

Let’s take an example to understand.

Example:

You bought a house worth ₹50 lakh with a loan of ₹40 lakh.

Component	Deduction Section	Amount (per year)
Principal repayment	80C	₹1,50,000
Interest on loan	24(b)	₹2,00,000
Additional interest	80EE or 80EEA	₹50,000 / ₹1,50,000

Total deduction = ₹4,00,000 to ₹5,00,000 per year (depending on eligibility)

This can reduce your taxable income significantly, saving you thousands of rupees in tax.

Documents Required to Claim Tax Benefits

To claim these deductions while filing your income tax return or for submission to your employer, keep these documents ready:

Home loan statement from the bank (shows principal & interest separately)
Possession certificate or completion certificate
Loan sanction letter
Sale deed / Agreement
PAN of the lender (if home loan is from a non-bank source)
Proof of payments made for stamp duty, registration

When Can You Start Claiming These Benefits?

You can start claiming:

Principal (80C) and interest (24b) deductions only after possession or completion of the house.
Pre-construction interest can be claimed in 5 equal parts after completion.

Joint Home Loan – Double the Tax Benefits!

If you take a joint home loan (say, with your spouse or parent), and both are co-owners of the property and co-borrowers of the loan, both can claim tax benefits separately:

Deduction	Limit per person
Section 80C	₹1,50,000
Section 24(b)	₹2,00,000

So together, a couple can claim up to ₹7 lakh (₹3 lakh under 80C and ₹4 lakh under 24b).

Salaried Employees: How to Claim Tax Benefits?

If you are a salaried person:

Submit proof (loan certificate, possession documents) to your employer before the deadline.
Your employer will consider these benefits and reduce your TDS (tax deducted at source).
If not submitted in time, you can still claim while filing your ITR.

Can You Claim Deduction if You Live on Rent?

Yes, but with conditions.

If you are paying home loan EMIs for a house in another city and living on rent, you can:
- Claim Section 24(b) for interest
- Claim HRA exemption for rent

You must prove that the house under loan is not livable due to work or other reasons.

When You Cannot Claim Tax Benefits

If you buy under-construction property and possession is delayed beyond 5 years, Section 24(b) benefit reduces to ₹30,000 only.
If you sell the house within 5 years, the 80C benefits claimed earlier will be reversed.
You cannot claim both 80EE and 80EEA – only one is allowed.

Home Loan Tax Benefit Summary Table

Section	Benefit Type	Maximum Deduction	Key Condition
80C	Principal Repayment	₹1,50,000	House should not be sold within 5 years
24(b)	Interest	₹2,00,000	House must be completed in 5 years
80EE	Extra Interest	₹50,000	First-time buyer, loan under ₹35 lakh
80EEA	Extra Interest	₹1,50,000	Affordable housing, loan under ₹45 lakh

Tips to Maximize Your Tax Benefits

Choose joint loan if possible – it doubles the deduction limit.
Buy ready-to-move-in or soon-to-complete property to avoid losing tax benefits.
Plan your finances to take full advantage of Sections 80C, 24(b), and others.
Keep all documents safe – loan certificates, possession letters, etc.
Take help from a tax expert if confused about claiming.

Common FAQs

Q1. Can I claim tax benefits on a home loan taken from friends or relatives?

Answer: You can claim interest deduction under Section 24(b) if you have proof of payment and the lender’s PAN. But you cannot claim 80C for principal unless the loan is from a recognized financial institution.

Q2. Can I claim both HRA and home loan benefits?

Answer: Yes, if you stay in a different city due to work and your home is in another place.

Q3. What if I miss submitting documents to my employer?

Answer: You can still claim the benefits while filing your Income Tax Return (ITR).

Conclusion

Taking a home loan not only helps you buy your dream house, but it also helps you save big on income tax. If planned properly, you can save ₹5 lakh or more every year using various sections of the Income Tax Act.

Understand the rules, keep your documents ready, and use the benefits wisely to lower your tax burden and build wealth.

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Home Loan Tax Benefit – How to Save Income Tax on Your Home Loan?...