Availing of a housing loan can help you purchase a property and, at the same time, reduce taxable income. Home loan tax benefits available under the old tax regime of the Income Tax Act, 1961, can lead to sizeable savings, especially when planned and claimed effectively. Depending on the type of property and loan, borrowers can claim deductions on interest payments, principal repayment, and even upfront expenses such as stamp duty.
Understanding Key Sections Offering Tax Benefit
There are four main sections under the Income Tax Act, 1961, that relate to home loan tax benefits — Section 24(b), Section 80C, Section 80EE, and Section 80EEA. These apply under the old tax regime and vary based on property value, ownership status, and loan sanction date.
Let us explore each one in detail.
Section 24(b) – Deduction on Interest Paid
Under Section 24(b), borrowers can claim deductions on the home loan interest paid during a financial year. The deduction limit depends on whether the property is self-occupied or let out.
For self-occupied properties, the maximum deduction is up to Rs. 2 Lakh per annum.
For let-out or rented properties, there is no upper limit. The entire interest paid can be deducted from rental income.
This benefit is applicable only if the purchase or construction of the property is completed within five years from the end of the financial year in which the loan was taken.
Section 80C – Deduction on Principal Repayment
This section covers the principal component of the housing loan. Borrowers can claim deductions of up to Rs. 1.5 Lakh per annum under Section 80C. However, this limit is shared with other eligible investments such as life insurance premiums, Provident Fund contributions, and ELSS.
Deductions under Section 80C apply only after the construction is complete and a possession or completion certificate is issued. Additionally, the property should not be sold within five years of possession. If it is, the amount claimed as a deduction will be added back to the income in the year of sale.
One-time charges such as stamp duty and registration fees are also eligible under this section, provided they are claimed in the same financial year they are paid.
Section 80EE – Additional Deduction for First-Time Buyers
Section 80EE offers an extra deduction on interest paid, over and above the Rs. 2 Lakh available under Section 24(b). The maximum deduction under this section is Rs. 50,000 per annum.
To qualify, the following conditions must be met:
The housing loan must have been sanctioned between 1 April 2016 and 31 March 2017.
The sanctioned loan amount must not exceed Rs. 35 Lakh.
The value of the property should not be more than Rs. 50 Lakh.
The borrower must not own any other residential property on the date of loan sanction.
This section is aimed at encouraging first-time homebuyers to enter the market with financial support in the form of interest deductions.
Section 80EEA – Additional Benefits for Affordable Housing
Section 80EEA is similar to 80EE but focuses on affordable housing. It allows an additional deduction of up to Rs. 1.5 Lakh on the interest paid, subject to the following conditions:
The loan must have been sanctioned between 1 April 2019 and 31 March 2022
The stamp duty value of the property must not exceed Rs. 45 Lakh
The borrower should not own any residential property on the date of sanction
Deductions cannot be claimed under both 80EE and 80EEA simultaneously
If all criteria are met, borrowers can claim a total interest deduction of up to Rs. 3.5 Lakh per annum (Rs. 2 Lakh under Section 24(b) + Rs. 1.5 Lakh under Section 80EEA).
Each deduction comes with specific conditions. Ensuring that your loan details, property value, and documentation meet the relevant conditions can help you maximise the available tax benefits.