What Are the Tax Benefits on Home Loan in India?

Home loan tax benefits in India allow borrowers to save significantly under the Income Tax Act, 1961. You can claim deductions of up to ₹2 lakh on home loan interest under Section 24(b) and up to ₹1.5 lakh on principal repayment under Section 80C. Additional benefits include deductions under Section 80EE and Section 80EEA for first-time buyers. These provisions reduce overall tax liability, making property ownership more affordable for homebuyers, NRIs, and investors.

Why Tax Benefits Matter for Homebuyers

Buying a home in India is one of the biggest financial decisions, and the government supports it by offering tax incentives on home loans. These benefits not only make homeownership more affordable but also encourage real estate investment, especially in growing markets like Delhi NCR, Bengaluru, and Pune. Understanding these provisions helps you maximize savings while building a long-term asset. Let’s explore how each section of the Income Tax Act works in your favor.

What is Section 24(b), and How Much Deduction Can You Claim?

You can claim up to ₹2 lakh deduction annually on home loan interest under Section 24(b) if the property is self-occupied. For let-out properties, there is no upper limit on interest deduction.

This deduction is one of the most powerful tools for salaried and self-employed borrowers because the interest portion is usually higher during the initial years of repayment. For example, if you are paying ₹25,000 monthly EMI, about ₹18,000 may go toward interest. Over a year, this adds up to ₹2.1 lakh, almost the full deduction limit.

Key Points:

• Applicable to both self-occupied and let-out properties.
• Maximum deduction: ₹2,00,000 (self-occupied).
• No limit for let-out property, but overall set-off against other income is capped at ₹2 lakh.
• Construction must be completed within 5 years of loan sanction.

How Does Section 80C Help with Principal Repayment?

Under Section 80C, you can claim up to ₹1.5 lakh deduction annually on principal repayment of your home loan. This includes stamp duty and registration charges, provided they are claimed in the same financial year of purchase.

This section benefits first-time buyers the most, as EMIs in early years consist largely of interest, but principal deductions add up over time.

Example:

If your EMI principal repayment for the year is ₹1.2 lakh and the stamp duty was ₹80,000, you can claim ₹1.5 lakh (the maximum cap).

Quick Pointers:

• Lock-in period: Property should not be sold within 5 years of possession.
• Includes: Principal repayment, stamp duty, registration charges.
• Limit: ₹1.5 lakh combined with other 80C instruments (PF, ELSS, LIC).

What Are the Section 80EE and Section 80EEA Benefits for First-Time Buyers?

To boost affordable housing, the government introduced Section 80EE and 80EEA, offering additional tax savings beyond Sections 24(b) and 80C.

• Section 80EE: Deduction of up to ₹50,000 on home loan interest for first-time buyers.
• Section 80EEA: Deduction of up to ₹1.5 lakh for affordable housing loans sanctioned between April 2019 and March 2022, with property value capped at ₹45 lakh.

Snapshot Table:

Can NRIs Claim Tax Benefits on Home Loans in India?

Yes, NRIs can claim the same tax benefits on home loans in India as resident Indians. Deductions under Sections 24(b), 80C, 80EE, and 80EEA are available, provided the income is taxable in India.

For example, if an NRI buys a flat in Gurgaon and earns rental income, they can claim:

• ₹2 lakh deduction on interest (24b).
• ₹1.5 lakh on principal (80C).
• Additional deductions if eligible (80EE/80EEA).

Key Insights for NRIs:

• Tax deducted at source (TDS) applies to rental income earned.
• Repayment can be done through NRE/NRO accounts.
• Deductions are claimed while filing ITR in India.

What Are the Tax Benefits of a Second Home Loan?

When you buy a second home, the tax rules differ slightly. Earlier, one property was considered self-occupied, and others were “deemed let out.” Since Budget 2019, taxpayers can claim two properties as self-occupied.

For a second home loan:

• Interest deduction: Up to ₹2 lakh for self-occupied property.
• If let out: No cap on interest deduction, but overall set-off restricted to ₹2 lakh.
• Principal repayment: Eligible under Section 80C.

This provision benefits investors purchasing property in high-rental-yield areas, such as Noida, Whitefield (Bengaluru), or Hinjewadi (Pune).

Tax Benefit Comparison: First-Time vs. Second-Time Buyers

What Tax Benefits Are Available on Under-Construction Property?

Tax deductions can only be claimed after the construction is completed. However, you can claim a pre-construction interest deduction in 5 equal installments after possession.

Example: If you paid ₹6 lakh as interest during the construction period, you can claim ₹1.2 lakh each year (in addition to regular deductions).

Rules:

• The claim starts only after possession.
• Maximum deduction under Section 24(b) is ₹2 lakh.
• Principal repayment (80C) is not allowed during the construction phase.

Key Takeaways

• ₹2 lakh deduction on interest (Section 24b).
• ₹1.5 lakh deduction on principal (Section 80C).
• Additional benefits for first-time buyers (80EE/80EEA).
• NRIs enjoy the same tax advantages.
• Pre-construction interest deduction in 5 installments.
• Tax savings up to ₹5 lakh annually for eligible buyers.

Conclusion

Tax benefits on home loans in India are a powerful way to reduce your tax burden while building wealth through real estate. From Sections 24(b) and 80C to special provisions like 80EE and 80EEA, homeowners can save up to ₹5 lakh annually if they plan smartly. These incentives make buying property not only an emotional milestone but also a financially strategic decision.