Save tax with home loan repayment

Understand what home loan repayment is and what are the best ways to save tax on your loan repayment.
Save tax with home loan repayment
2 min read
24 July 2023

Undoubtedly, home loans are the most practical means to live your dream of owning a home. While availing of a home loan can be beneficial, the repayment process can be a little daunting if you do not prepare your finances well. You can make home loan repayment more rewarding by understanding tax-saving opportunities on your home loan.

Ways to optimise your home loan repayment by claiming a tax deduction

  1. Claim tax deductions on principal and interest: The Indian Income Tax Act provides tax benefits on both the principal and interest components of the home loan. Under Section 80C, you can claim a deduction of up to Rs. 1.5 lakh on the principal repayment in a financial year while under Section 24(b), you can claim a deduction of up to Rs. 2 lakh on the interest paid on a self-occupied property.
  2. Utilise joint home loan benefits: If you take a home loan jointly with your spouse or family member, both co-applicants can claim separate tax deductions on the principal and interest components. This way, you can maximise tax savings, especially when both individuals fall under different tax brackets.
  3. Make use of pre-EMI interest deduction: Before the completion of your property, you may have paid pre-EMIs, which covers only the interest component on the disbursed loan amount. You can claim tax deductions on this pre-EMI interest in five equal instalments from the year of completion of the property.
  4. Utilise Section 80EEA: First-time home buyers can claim an additional deduction of up to Rs. 1.5 lakh under Section 80EEA on the interest paid on the home loan. This deduction is available over and above the limits of Section 24(b) for self-occupied properties.
  5. Invest in tax-saving instruments: To complement your home loan tax benefits, consider investing in other tax-saving instruments such as Equity-Linked Savings Schemes (ELSS), Public Provident Fund (PPF), National Savings Certificate (NSC), etc. These investments can help you save taxes while building a diversified investment portfolio.

Home loan repayment can be made more financially workable by utilising tax-saving opportunities. Take advantage of the tax deductions available on both the principal and interest components of the home loan. Remember to consult with a financial adviser to tailor the best tax-saving plan according to your specific financial situation.

Disclaimer

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Frequently asked questions

What is the maximum tax benefit on home loan repayments?

The maximum tax benefit on home loan repayments in India is governed by Section 24(b) and Section 80C of the Income Tax Act. Here's a brief overview:

  1. Section 24(b): Interest on Home Loan Under Section 24(b), you can claim a deduction on the interest paid on a home loan for a self-occupied property. The maximum limit for this deduction is up to Rs. 2 lakh per financial year. This deduction applies to both under-construction and fully constructed properties. Additionally, there is no upper limit on the maximum loan amount to claim this deduction.
  2. Section 80C: Principal Repayment Section 80C allows you to claim a deduction on the principal repayment of the home loan. The maximum limit for this deduction is up to Rs. 1.5 lakh per financial year. This deduction is applicable to the principal repayment of the home loan, as well as other eligible investments like PPF, EPF, NSC, etc.

It is important to note that the above limits are subject to change based on amendments to tax laws and government policies.

Does home loan top-up offer tax benefit?

A home loan top-up itself does not generally offer a separate tax benefit under the Income Tax Act in India. However, the usage of the top-up loan funds can impact whether you can claim tax deductions.

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