Income Tax Exemption on Home Loan
Rashmita Choudhary- May 20
- 7 min read
Besides helping you buy your dream home; a home loan offers substantial tax benefits under the Income Tax Act of 1961. Exemptions are available under different sections such as Section 80C, Section 24(b), and Section 80EEA. These benefits reduce taxable income, which eases financial burdens and helps them reach their long-term financial goals and savings. By understanding these exemptions, you can ensure efficient loan repayment and maximize savings.
Table of Contents
Overview of Income Tax Exemption on Home Loan
Home loan tax exemptions fall under these sections of the Income Tax Act, 1961:
Section 80C
Section 24(b)
Section 80EE/80EEA
Applicable Section | Tax Deduction (Type) | Amount | Conditions |
Section 80C | Principal Repayment | Up to Rs. 1.5 lakh per annum | Property has to be held for 5 years after possession If sold before 5 years, previous exemptions are added back to taxable income |
Section 80C | Stamp Duty and Registration Charges | Part of Rs. 1.5 lakh limit | Can be claimed in the year of incurrence of these expenses |
Section 24 | Interest on Home Loan | Up to Rs. 2 lakh per annum | Applicable to self-occupied properties No cap on deduction for let-out properties Deduction reduced to Rs. 30,000 if construction is not completed within 5 years |
Section 24 | Pre-Construction Interest | Deducted in 5 equal instalments | Can be claimed after construction is completed/property is acquired A cap of Rs.2 lakh |
Section 24 & 80C | Joint Housing Loan | Rs. 2 lakh (interest) Rs. 1.5 lakh (principal) | Each co-borrower can claim separate deductions for interest and principal They should be co-owners of the property |
Section 24 & 80C | Second Home Loan | Same as the first loan | Tax exemptions available for both first and second home loans Second property treated as self-occupied if not let-out |
We will now explain each of these sections in detail.
Income Tax Exemption on Home Loan Under Section 80C
Exemption on Principal Repayment: A home loan's principal repayment is deductible under Section 80C of the Income Tax Act, up to a maximum of Rs 1.5 lakh per fiscal year; however, in order to qualify for this benefit, the property must be held for at least five years after the date of possession; if it is sold before then, the deductions from the years before will be reversed and included in your taxable income in the year of sale of the property.
Exemption on Registration and Stamp Duty: Apart from principal repayment, Section 80C permits a tax deduction for stamp duty and registration fees, up to a total of Rs 1.5 lakh. However, this deduction is only available during the fiscal year in which these costs are incurred.
Exemption on Joint Home Loans: Each borrower may claim a separate exemption for principal and interest repayment when a house loan is taken out jointly. As long as they are also co-owners of the property, each loan holder may deduct up to Rs 2 lakh for interest paid under Section 24 and up to Rs 1.5 lakh for principal payments under Section 80C. Therefore, both parties can maximise their tax benefits by claiming individual exemptions if the loan is taken out jointly with a family member.
Exemption on Second Home Loans: Subject to the corresponding exemption restrictions, you can still benefit from the same tax advantages as your first house loan if you take out a second one to buy a different property. The government added further incentives for home property investments in the 2019 Union Budget. In the past, notional rent was calculated and taxed since only one property could be considered self-occupied while the other was considered rented. Nonetheless, if a second property is not rented out, it may also be deemed self-occupied under the new rules, which would reduce taxes on principal and interest payments for both properties.
Exemption on Home Loan Interest Under Section 24(b)
Section 24(b)home loan interest tax exemption can be claimed only for a home loan taken out for building or buying a property. Also, the project must be completed within five years after the end of the FY when the loan was approved. Check the following criteria:
Subject to a maximum limit of Rs 2 lakh per annum, the interest component of the EMI can be deducted from total income. Since the AY 2018–19, self-occupied properties can seek this exemption.
The deduction for interest paid on a rental property loan is unlimited. The full amount of interest paid can be deducted in this case.
Exemption on Home Loan Interest for Under-Construction Properties
You cannot deduct the interest on a house loan for an under-construction property until the construction is finished if you are making EMI payments before moving in. On the other hand, you can claim the deduction right away if you buy a fully constructed property. Beginning in the year that the construction is finished or the property is purchased, this sum can be subtracted in five equal yearly installments. Although this deduction is in addition to the standard deduction for house loan interest, the entire amount that can be claimed is still limited to Rs 2 lakh.
Exemption on Home Loan Under Section 80EE
For first-time homebuyers, Section 80EE offers an extra tax exemption of up to Rs 50,000. The following requirements must be met to claim this exemption:
The property should be worth at least Rs 50 lakh, and the home loan amount should not be more than Rs 35 lakh.
The loan had to be approved within the timeline April 1, 2016, and March 31, 2017.
The borrower must be a first-time homebuyer, which means that at the time the loan is approved, they shouldn't have any other properties.
Exemption on Home Loan Under Section 80EEA
The Union Budget 2019 added a new exemption under Section 80EEA for homebuyers, with a maximum deduction of Rs 1.5 lakh on house loan interest, in an effort to boost the housing sector. Here are the eligibility criteria:
The property's stamp duty value cannot be more than Rs 45 lakh.
The loan needs to have been approved between April 1, 2019, and March 31, 2022 (the deadline was moved from March 31, 2021).
The borrower must be a first-time homebuyer, meaning they should not own any other residence at the time the loan is sanctioned.
The Section 80EEA deduction is not available to those who are already claiming a Section 80EE deduction.
New Regime Impact on Income Tax Exemptions on Home Loan
Home loan tax exemptions are limited under the new tax regime as opposed to the previous one, where deductions were unrestricted. The main changes are listed below:
No exemption u/s 80C: No deductions allowed for registration fees, stamp duty, or principal repayment.
No exemption under Sections 80EE and 80EEA: First-time homebuyers are not eligible for any additional benefits.
No exemption u/s 24(b) for self-occupied property: Tax exemptions are not available for interest paid on a home loan for a self-occupied home.
Exemption for rental property under Section 24(b): Interest paid on a rental home may be written off.
Restrictions on the set-off of losses: If the net income from a rental property is lost, it may be deducted from income from another home, but not from a salary or other sources of income.
Steps to Claim Income Tax Exemption on Home Loan
The detailed procedure for claiming housing loan tax benefits is as follows:
Step 1: Get the necessary paperwork ready Collect necessary documentation, such as the property's ownership documents, loan details, a bank certificate outlining the principal and interest payments made during the year, and receipts for municipal taxes paid.
Step 2: Send Documents to Employer (for Salaried Employees): Send these documents to your employer if you are paid. To assist you save taxes all year long, they will modify the TDS (Tax Deducted at Source) in accordance with the home loan benefits.
Step 3: Income from House Property Calculation: You do not have to turn in the paperwork if you work for yourself. Rather, you need to figure out how much money the house property brings in.
Step 4: File your income tax return (ITR): To make a deduction claim, submit your ITR and include the valid limits for exemptions under the aforementioned sections.
Conclusion
Home loan borrowers can claim tax a diverse range of valid exemptions, which reduce taxable income and give financial relief. In special cases, second homebuyers and joint borrowers can also claim exemptions to optimise their tax savings. By being aware of these exemptions, borrowers can maximise legitimate tax breaks, promoting both their financial stability and real estate objectives.
Frequently Asked Questions
Can I claim a home loan interest exemption for a self-occupied property under the new tax regime?
No, the Section 24(b) deduction for interest paid on home loans for self-occupied dwellings has been eliminated under the new tax structure.
What happens if I sell my property before 5 years for Section 80C exemption?
In the event that you sell the property before the five-year period has passed, the Section 80C tax deductions for principal repayment will be reversed and returned to your taxable income.
Can I claim both Section 80EE and Section 80EEA exemptions for the same home loan?
No, anyone who is claiming an exemption under Section 80EE cannot also claim the same property under Section 80EEA.
What is the maximum exemption for housing loan interest deduction for a let-out property?
The exemption for interest paid on a rental property has no upper limit. The full amount of interest paid may be written off.
Can I claim an exemption for home loan interest during the construction phase?
Yes, you can deduct pre-construction interest in five equal yearly installments; however, Section 24(b) limits this amount to Rs. 2 lakh.
Are stamp duty and registration charges eligible for a separate exemption?
Yes, stamp duty and registration fees are deductible under Section 80C; however, the total amount that can be repaid for principal repayment is Rs. 1.5 lakh.
If I take a second home loan, can I claim the same exemptions as for the first property?
As long as the second house is deemed self-occupied and isn't rented out, you can indeed claim the same exemptions for both your first and second home loans.
What happens if the property’s construction is delayed beyond five years?
The interest deduction under Section 24(b) would be restricted to Rs. 30,000 annually if the property's construction is delayed for more than the allotted five years.
Can I claim exemptions on both home loan principal and interest for a joint loan?
Yes, as long as they are co-owners of the property, both co-borrowers of a joint house loan are eligible to claim separate deductions for the principal (up to Rs. 1.5 lakh) and interest (up to Rs. 2 lakh).
Are there any restrictions on claiming tax exemptions for home loans under the new tax regime?
Yes, you are unable to deduct debt repayment, pre-construction interest, stamp duty, and registration fees under the new tax system. The only deduction available is for interest paid on rental property.
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