Can You Claim Principal Payment of Home Loan in 80C Without Possession?
- Farheen Mukadam
- Sep 12
- 9 min read
Home loans provide an excellent opportunity for taxpayers to save on taxes through Section 80C of the Income Tax Act. The principal repayment of a home loan is eligible for deduction under this section, helping individuals reduce their taxable income. However, one question that often arises is whether it is possible to claim the principal payment of a home loan under Section 80C before possession of the property is taken. Let us explore the intricacies of claiming tax benefits on home loans, focusing on the eligibility criteria, possession requirements, and how joint loan holders can avail of these benefits.
Table of Contents:
Can You Claim Principal Payment of Home Loan in 80C Without Possession?
A common question among homebuyers is whether the principal repayment on a home loan can be claimed under Section 80C before possession of the property. The answer is yes. You can claim the principal repayment as a deduction under Section 80C, even before taking possession of the property, as long as the loan is taken for purchasing or constructing a residential property. The key factor here is that the loan must be for the purpose of buying or constructing a property, and the repayment of the principal must occur during the financial year. There are no specific requirements stating that possession of the property is necessary to claim this deduction, although the property must eventually be completed and possessed.
Understanding Section 80C Deductions for Home Loans
Section 80C of the Income Tax Act allows taxpayers to claim deductions on certain investments and expenses, including the principal repayment of home loans. The maximum amount that can be claimed under Section 80C is ₹1.5 lakh per financial year. This deduction is available to individuals and Hindu Undivided Families (HUFs) who have taken a home loan for the purchase or construction of a residential property. The principal repayment is eligible for deduction, but the interest paid on the home loan is claimed underSection 24(b)separately.
To claim the deduction, the property must be in the taxpayer’s name, and the loan should not be taken for speculative purposes. Additionally, the taxpayer must meet the eligibility criteria laid down by the Income Tax Department.
Eligibility Requirements for Claiming Principal Payment
The eligibility for claiming deductions under Section 80C on the principal repayment of a home loan depends on several factors:
The property must be self-occupied or let out: The deduction is available for self-occupied, let-out, or rented properties. Whether you live in the property or rent it out doesn’t affect your eligibility to claim the deduction.
The loan must be for purchasing or constructing a property: You can only claim the deduction for home loans used for the purchase or construction of a residential property.
You must be the borrower: Only the individual who has taken the loan is eligible to claim the deduction, not the co-borrower unless they are also contributing to the repayment.
The Role of Possession in Claiming 80C Benefits
While possession of the property is not mandatory for claiming the principal repayment deduction under Section 80C, certain conditions apply when it comes to other tax benefits:
Interest deductions under Section 24(b): To claim deductions on the interest paid for a home loan under Section 24(b), the property must be either self-occupied or let out. Therefore, while possession isn’t required for claiming the principal deduction under Section 80C, you must have possession of the property to claim the interest deduction for a self-occupied property.
Completion of construction: The property must be constructed and ready for possession to claim the interest deduction for a self-occupied property. If the property is under construction, the interest on the loan can still be claimed, but the total claim is limited to ₹2 lakh under Section 24(b) when the property is completed.
Other Tax Deductions Available for Home Loans
In addition to claiming the principal repayment under Section 80C, homeowners can also avail of other tax deductions related to their home loans:
Interest deduction under Section 24(b): The interest paid on the home loan can be claimed under Section 24(b) for a self-occupied or rented property. The maximum limit for self-occupied properties is ₹2 lakh per year, and for a rented property, there is no upper limit on the deduction, though it is subject to certain conditions.
First-Time Home Buyers under Section 80EE: If you are a first-time homebuyer, you may be eligible for an additional deduction of up to ₹50,000 underSection 80EEfor interest paid on home loans. This is available only if the loan amount is less than ₹35 lakh and the property value does not exceed ₹50 lakh.
How Joint Loan Holders Can Claim Tax Benefits Under Section 80C
When two or more individuals jointly take a home loan, both can claim tax benefits under Section 80C and Section 24(b), provided they are both co-owners of the property and co-borrowers of the loan. The deduction for the principal repayment under Section 80C is allowed in proportion to the amount paid by each borrower. For example, if the home loan is split equally, each borrower can claim 50% of the principal repayment amount up to ₹1.5 lakh. Similarly, for interest under Section 24(b), each co-borrower can claim a deduction of up to ₹2 lakh, depending on their contribution.
It is essential that both co-borrowers are named in the property’s ownership documents, and the principal repayment and interest amounts are divided according to their contribution to the loan repayment.
Impact of Selling Property Within 5 Years on Deductions
If the property for which you claimed deductions under Section 80C and Section 24(b) is sold within five years of possession, the tax authorities may require you to reverse the claimed deductions. This is done to prevent individuals from taking undue advantage of tax benefits when the property is sold quickly after purchase. If the property is sold before five years, you may have to pay taxes on the amount you deducted as principal and interest over the previous years. This is typically treated as "Income from Other Sources" in the year of sale, and the reversal will be added to your taxable income.
Recent Updates on Home Loan Tax Deductions for FY 2025
For the Financial Year 2025, the Income Tax Department has made some significant updates regarding home loan tax deductions. The interest limit under Section 24(b) remains unchanged, but the government has been actively considering measures to provide more relief to first-time homebuyers. As part of the ongoing reforms, there are discussions around increasing the deduction limits under Section 80C for principal repayment or offering additional deductions for interest paid by middle-income groups. These updates are part of the government’s efforts to encourage homeownership and provide tax relief to taxpayers facing increased property prices and loan burdens.
Conclusion
Claiming tax deductions for home loans can significantly reduce the taxable income of homebuyers. Section 80C allows individuals to claim the principal repayment of home loans, even before taking possession, making it an attractive option for tax planning. While possession isn’t necessary for claiming the principal repayment deduction, it is important to understand how other deductions, like those under Section 24(b) for interest, are impacted by possession. Additionally, joint loan holders can split their deductions based on their contributions. Taxpayers should also be cautious when selling the property within five years, as this could reverse the claimed deductions. Keeping track of the latest updates ensures you maximize the tax benefits while staying compliant. For anyone looking for assistance in tax filing, it is highly recommended to download theTaxBuddy mobile appfor a simplified, secure, and hassle-free experience.
FAQs
Q1: Can I claim principal repayment under Section 80C if I haven’t yet taken possession of the property?
Yes, you can claim the principal repayment under Section 80C even if you haven’t taken possession of the property yet. As long as the home loan is used for the purpose of purchasing or constructing a residential property, the repayment is eligible for a deduction, regardless of whether possession has been taken. However, the deduction will only be applicable for the portion of the loan that is being repaid, and the property should eventually be used for residential purposes.
Q2: What is the maximum deduction available under Section 80C for home loan principal repayment?
The maximum deduction you can claim under Section 80C for home loan principal repayment is ₹1.5 lakh per financial year. This limit applies to the total principal repayment on your home loan, whether the loan is for purchasing or constructing a residential property. This deduction is part of the overall ₹1.5 lakh limit for investments in specified financial instruments under Section 80C.
Q3: How do joint loan holders claim tax benefits?
Joint loan holders can claim tax benefits on a pro-rata basis, according to their respective share in the loan repayment. This applies to both the principal repayment under Section 80C and the interest paid on the loan under Section 24(b). Each joint holder can claim their share of the tax benefits, which will be proportionate to the amount they contribute to the loan repayment. Therefore, it’s important to maintain proper records to ensure both parties can claim their due benefits.
Q4: Can I claim both principal and interest deductions for home loans?
Yes, you can claim both the principal repayment under Section 80C (up to ₹1.5 lakh) and the interest paid on the loan under Section 24(b) (up to ₹2 lakh for self-occupied properties). These two deductions are independent of each other and can be claimed together, maximizing the tax benefits available on home loans. For properties that are rented out, the interest deduction can exceed ₹2 lakh, depending on the actual amount paid.
Q5: Does the property need to be completed to claim tax benefits on home loans?
For principal repayment under Section 80C, possession of the property is not required, meaning you can claim the deduction before taking possession. However, for claiming the interest deduction under Section 24(b) on a self-occupied property, the property must be completed and used as a self-occupied property. If the property is under construction, you can claim the interest deduction only once the property is completed and occupied.
Q6: Can I claim tax benefits if I sell the property within five years?
If you sell the property within five years of claiming tax benefits, particularly under Sections 80C and 24(b), you may need to reverse the deductions previously claimed. The total amount of deductions claimed, such as the principal repayment and interest deductions, will be added to your taxable income in the year the property is sold. This is because the tax benefits are only available if you retain the property for a minimum period, typically five years.
Q7: What happens if I take a loan for repairs or renovations? Can I claim tax benefits?
Tax benefits under Section 80C and Section 24(b) are available only for loans taken for purchasing or constructing a residential property. Loans for repairs or renovations do not qualify for these tax benefits. However, if the repairs or renovations are part of constructing a new property, or if the loan is used to improve an existing property that will be rented out, you may be eligible for certain deductions based on the rental income.
Q8: Is there any additional deduction for first-time homebuyers under the Income Tax Act?
Yes, first-time homebuyers can claim an additional deduction of up to ₹50,000 on the interest paid on home loans under Section 80EE, provided certain conditions are met. The home loan must be sanctioned between April 1, 2016, and March 31, 2025, and the loan amount must not exceed ₹35 lakh. This deduction is in addition to the standard ₹2 lakh interest deduction available under Section 24(b).
Q9: Are there any changes to home loan tax benefits for FY 2025?
There have been ongoing discussions about increasing the deduction limits or offering additional tax relief for homebuyers in FY 2025, especially for first-time buyers. However, no specific amendments have been confirmed yet. Taxpayers should keep an eye on the Union Budget announcements for any changes that may apply to the home loan tax benefits in the coming financial year.
Q10: How can I track my home loan repayment status for tax purposes?
You can track your home loan repayment status by requesting annual statements from your lender. These statements will show the principal and interest portions of your payments for the year, which you can use to claim tax benefits. Most financial institutions provide online portals where you can easily access these details. It is essential to maintain a record of these payments to ensure that you claim the correct tax deductions under Sections 80C and 24(b).
Q11: Can I claim tax benefits on a loan taken for a second home?
Yes, you can claim tax benefits on a loan taken for a second home. The same rules apply as with the first home, allowing you to claim the principal repayment under Section 80C (up to ₹1.5 lakh) and interest paid under Section 24(b) (up to ₹2 lakh for self-occupied properties). However, for the second home, you will need to prove that the property is indeed self-occupied. If the second property is rented out, you may be eligible for a higher deduction on the interest paid, with no cap.
Q12: What happens if I stop paying my home loan EMI?
If you stop paying your home loan EMI, your lender may classify the loan as a non-performing asset (NPA) and initiate recovery proceedings. While missing a few EMIs might not immediately affect your tax benefits, long-term non-payment may lead to the loss of tax deductions and penalties. Additionally, once the property is foreclosed or sold by the bank, you will likely lose the ability to claim any further tax benefits on the loan. It’s crucial to continue paying your EMIs to maintain eligibility for tax deductions and avoid potential legal consequences.
Comments