Owning a home is more than just a milestone—it’s also a wise financial move when you consider the tax benefits it offers. Many people don’t realize that taking a home loan can help reduce their overall tax liability significantly. Knowing how much tax benefit on home loan you can claim helps in better financial planning and long-term savings.
Tax Deductions Under Different Sections
The Government of India provides tax deductions on home loans under several sections of the Income Tax Act. Each section caters to different components of your loan, such as the principal repayment and interest payment.
1. Section 80C – Deduction on Principal Repayment
Under Section 80C, you can claim a deduction of up to ₹1.5 lakh per financial year for the repayment of the principal portion of your home loan. This limit is shared with other investments such as ELSS, PPF, and life insurance premiums.
However, to claim this benefit, the property should not be sold within five years of possession. If sold before that period, the deductions claimed earlier will be reversed in the year of sale.
2. Section 24(b) – Deduction on Interest Paid
This section allows you to claim up to ₹2 lakh per year on the interest paid for a self-occupied property. For a property that is let out on rent, there is no upper limit on the deduction, but the total loss under “Income from House Property” that can be set off against other income is capped at ₹2 lakh per year.
If your home is under construction, interest paid during that period can be claimed later—in five equal installments starting from the year of completion.
3. Section 80EE – Additional Deduction for First-Time Buyers
If you’re purchasing your first home, Section 80EE allows an additional deduction of up to ₹50,000 on the interest paid, over and above the limit under Section 24(b). This benefit is available if the property value and loan amount fall within specified limits and if no other property is owned.
4. Section 80EEA – Extended Benefit for Affordable Housing
For buyers purchasing an affordable home, Section 80EEA offers an additional deduction of ₹1.5 lakh on the interest paid, provided certain conditions are met. This section was introduced to make home ownership more accessible under the government’s affordable housing scheme.
How These Benefits Add Up
When you combine all these deductions, the total savings can be substantial. For example, an individual can save up to ₹3.5 lakh or more annually by combining Section 80C and Section 24(b) benefits, and even more if eligible under Sections 80EE or 80EEA.
Thus, understanding how much tax benefit on home loan applies to your situation can make a big difference to your financial health. It allows you to structure your loan smartly, select the right tenure, and maximize the returns on your investment.
Important Points to Remember
- The property must be in your name to claim the deduction.
- Joint home loan borrowers can each claim deductions individually, provided both contribute to loan repayment.
- Benefits are available only if the loan is taken from recognized financial institutions or banks.
- Proper documentation, such as interest certificates from the lender, is required when filing your income tax return.
Conclusion
A home loan not only helps you buy your dream home but also brings substantial tax advantages. By understanding the available deductions and claiming them correctly, you can reduce your tax outgo while steadily building an asset.
Planning your finances with awareness of these benefits ensures that your home loan works as a tool for long-term wealth creation rather than just a financial obligation.
