Home Loan Tax Benefits (FY 2024-25) Explained

Impact of New Income Tax Regime on Home Loan in FY 2025-26

Home loan benefits under the old tax regime remain unchanged, allowing borrowers to claim deductions without restrictions. However, the new tax regime has limited these benefits. Here's a breakdown:

• Deductions under Section 80C for principal repayment, and stamp duty registration charges, as well as under Sections 80EE and 80EEA, are not available.
• Under Section 24(b), the deduction for interest on home loan is not available for self-occupied properties.
• For let-out properties, deductions under Section 24(b) are available. If the net income from a let-out property results in a loss, this loss can be offset against profits from other house properties but cannot be adjusted against income from salary or other sources.

Home loan tax benefits under Section 80C & Section 24

The Government of India extends these benefits as a form of relief to borrowers, making home purchase more affordable. On availing a home loan, you need to make monthly repayment in the form of EMIs, which include two primary components – the principal amount and interest payable. The IT Act enables borrowers to enjoy tax benefits on both these components individually.

1. Deduction on Principal Repayment under Section 80C

Section 80C is one of the most commonly utilised sections of the Income Tax Act. It allows taxpayers to claim deductions for certain investments and expenditures, including the principal repayment of a home loan.

These are the deductions under Section 80C

• Claim a maximum home loan tax deduction of up to Rs. 1.5 lakh from your taxable income on the principal repayment
• This may include deduction on stamp duty and registration charges but can be claimed only once and in the same year that they are incurred. Section 80C of the Income Tax Act in India provides deductions for certain specified investments and expenditures

2. Deduction for stamp duty and registration charges Under Section 80C

Under Section 80C of the Income Tax Act, you can claim a deduction on stamp duty and registration charges paid while purchasing a house. This deduction is available up to ₹1.5 lakh but can only be claimed in the year these expenses are incurred. It applies to individuals and Hindu Undivided Families (HUFs) who buy a new residential property. However, if you claim this benefit, you cannot sell the property within five years, or the deduction will be reversed. This tax benefit helps reduce the overall cost of homeownership, making it more affordable for buyers.

3.Deduction for Interest Paid on Housing Loan under Section 24

Section 24 of the Income Tax Act allows deductions on the interest paid for a home loan, providing financial relief to borrowers. The deduction is based on the property's construction status:

Deduction up to ₹2 lakh: If the property's construction is completed within five years, taxpayers can claim a maximum deduction of ₹2 lakh on the interest paid.

Limited deduction for delayed construction: If the construction exceeds five years, the deduction limit reduces to ₹30,000.

This benefit applies to self-occupied and rented properties, helping reduce taxable income effectively.

Home loan tax benefits under Section 80EE and Section 80EEA

Section 80EE and 80EEA of the Income Tax Act offer additional tax benefits for homebuyers. Under Section 80EE, first-time homebuyers can claim a deduction of up to Rs. 50,000 on interest paid for a home loan. This benefit is available if the loan amount does not exceed Rs. 35 lakh, and the property value is under Rs. 50 lakhs.

1. Tax Deduction under Section 80EE

• First-time homebuyer: To be eligible for the deduction under Section 80EE, the taxpayer must be a first-time homebuyer. It means the individual should not own any residential property on the date of the loan sanction.
• Maximum deduction: Under Section 80EE, first-time homebuyers can claim an additional deduction of up to Rs. 50,000 on the interest paid on a home loan during a financial year. This deduction is over and above the deduction available under Section 24.
• Property value and loan amount limit: The value of the property for which the loan is taken should not exceed Rs. 50 lakh. Additionally, the loan amount should not exceed Rs. 35 lakh.
• Sanction period: The home loan should be sanctioned between specific financial years, as notified by the government. As of my last update, this period was from April 1, 2016, to March 31, 2017.
• Home Loan Interest Deduction: Section 80EE allows income tax benefits on the interest portion of the residential house property loan availed from any financial institution. You can claim a home loan interest deduction of up to Rs. 50,000 per financial year as per this section. You can continue to claim until you have fully repaid the loan. The deduction under 80EE is applicable only to individuals, which means that if you are a HUF, AOP, a company, or any other kind of taxpayer, you cannot claim the benefit under this section. To claim this deduction, you should not own any other house property on the date of the sanction of a loan. Use the home loan EMI calculator to estimate your home loan EMIs.

2. Tax Deduction under Section 80EEA

Section 80EEA provides a further deduction of up to Rs. 1.5 lakh on home loan interest for individuals buying affordable housing. To qualify, the property must be purchased between April 1, 2019, and March 31, 2022, with a stamp duty value of up to Rs. 45 lakhs. These deductions significantly reduce tax liabilities and make homeownership more affordable.

• Affordable housing: Section 80EEA was introduced to provide additional tax benefits to individuals buying affordable housing properties.
• First-time homebuyer: Similar to Section 80EE, the taxpayer must be a first-time homebuyer to claim the deduction under Section 80EEA.
• Maximum deduction: Under Section 80EEA, first-time homebuyers can claim an additional deduction of up to Rs. 1.5 lakh on the interest paid on a home loan during a financial year. This deduction is over and above the deductions available under Section 24 and Section 80EE.
• Property value and loan amount limit: The value of the property for which the loan is taken should not exceed Rs. 45 lakh. Additionally, the loan amount should not exceed Rs. 25 lakh:

Interest rate deductions on home loan for pre-construction phase

You can avail of interest rate deductions on your home loan during the pre-construction phase. This period is marked by the time when the property is being constructed or built, and you can claim deductions on the interest paid towards the loan. The deduction is allowed in five equal instalments starting from the year in which the construction of the property is completed. The maximum deduction allowed is up to Rs. 2 lakh, and you must ensure that you provide all mandatory documents like the possession letter and construction completion certificate to claim the deduction. The deduction can provide significant relief during the pre-construction phase and help you manage your finances better while your property is being constructed.

Tax Deduction for a joint housing Loan

If you have taken a joint home loan with a co-applicant, you can claim deductions on the interest paid towards the loan, subject to certain terms and conditions. The deduction is available for co-applicants who are joint owners of the property and co-borrowers of the loan. The maximum amount of deduction allowed is up to Rs. 2 lakhs per co-applicant, which means that both co-applicants can avail of the deduction. To claim the deduction, the co-applicants must provide the necessary documents such as the loan sanction letter, the loan agreement, and possession certificate. Claiming the deduction for a joint housing loan can provide significant tax benefits and help you manage your finances when purchasing a property.

Tax Deductions on the Principal Amount of Housing Loan

Tax deductions are available on the principal amount of a home loan under certain conditions. These deductions can be claimed under Section 80C of the Income Tax Act, 1961.

Here are some key points to consider:

Maximum deduction: The maximum deduction allowed under Section 80C for the principal repayment of a home loan is capped at Rs. 1.5 lakh per financial year. This deduction is part of the overall limit of Rs. 1.5 lakh that includes other eligible investments and expenses.

Conditions for claiming deduction: To claim the deduction, the property should be in your name, and the construction should be completed. If you have taken a loan for renovation or repair work, the deduction can be claimed after completion of the renovation or repair.

Pre-construction period: For properties under construction, the principal repayment cannot be claimed as a deduction until the construction is completed. However, during the construction period, you can claim the interest paid as a deduction in five equal installments starting from the year of completion.

Home loan certificate: The lending institution provides a home loan certificate that states the principal and interest components of the repayment. This certificate is essential for claiming the deduction while filing your income tax return.

It is crucial to keep in mind that tax laws are subject to change, so it is advisable to consult a tax professional or refer to the latest tax regulations for accurate and up-to-date information regarding tax deductions on the principal amount of a home loan in India.

Some other conditions to note

You may also note below pointers and avail benefit

• The tax exemption is applicable only when construction of the property is complete, or you purchase a ready-to-move-in house
• Enjoy these tax benefits on home loans every year and save a significant amount
• If you sell off the property within 5 years of its possession, the claimed benefits are reversed and added to your taxable income
• You may purchase the property and let it out on rent. In that case, there is no maximum interest deduction applicable
• When availing the home loan, if you continue to rent another house where you presently reside, you can claim tax benefits against HRA as well

Please note that tax laws and provisions may change over time due to budget announcements or amendments in tax regulations. Therefore, it is essential to verify the latest provisions and consult a tax professional to understand the most up-to-date tax benefits applicable to your specific circumstances.

How to treat loss from house property for taxation?

If you incur a loss from your house property, you can offset it against income from any of the other five heads of income: salary, house property, business or profession, capital gains, and other sources. This is referred to as a house property loss set-off.

Key rules for house property loss set-off

1. Amendment by Finance Act 2017:

Effective from FY 2018-19, the loss from house property that can be set off against income from other heads is capped at Rs. 2 lakh per financial year.

2. Carrying forward losses:

• If the house property loss exceeds Rs. 2 lakh in a financial year, the remaining loss can be carried forward to the next fiscal year.
• However, in subsequent years, the carried-forward loss can only be set off against income from house property, not other income heads.

3. Eight-year limit:

• Taxpayers can carry forward the loss for a maximum of eight assessment years.
• If there is any income from house property during this period, the loss must be set off in that year.

4. Same-year set-off:

• Within the same fiscal year, the loss can be offset against any income head. However, once carried forward, it is restricted to house property income only.

Example:

If you incur a house property loss of Rs. 3 lakh in a financial year and earn Rs. 6 lakh from salary:

• You can offset Rs. 2 lakh of the loss against salary income in the same year.
• The remaining Rs. 1 lakh loss can be carried forward to the next year.
• In subsequent years, this carried-forward loss can only be adjusted against house property income.

This provision ensures that taxpayers can gradually recover losses while adhering to the Rs. 2 lakh cap for inter-head set-off and the eight-year carry-forward limit. It’s crucial to manage these offsets wisely to maximize tax benefits.

Tax benefits for first-time buyers

First-time homebuyers can avail significant tax benefits under various sections of the Income Tax Act. Under Section 80C, they can claim deductions up to Rs. 1.5 lakh on principal repayment of their home loan. Additionally, Section 80EE allows first-time buyers to claim an extra Rs. 50,000 on home loan interest, provided the loan amount is below Rs. 35 lakh and the property value is under Rs. 50 lakh. For affordable housing, Section 80EEA provides an additional deduction of Rs. 1.5 lakh on interest paid, provided the property’s stamp duty value is up to Rs. 45 lakh. These tax benefits reduce the overall financial burden on first-time buyers and make purchasing a home more financially accessible.

Home loan tax benefits of owning a second property

Owning a second property comes with distinct tax benefits, especially on home loans. For a second home, the interest paid on the home loan can be claimed as a deduction under Section 24(b) without any upper limit if the property is rented out. However, if the property is self-occupied, the deduction limit is capped at ₹2 lakh. Additionally, if the second property is still under construction, you can claim tax benefits on the interest paid after possession. Pre-construction interest can be claimed in five equal installments. Understanding under construction home loan tax benefits is crucial, as they offer significant financial relief over time.

How to claim tax benefits on home loans?

1. Identify eligible sections: Determine which sections apply to your home loan, such as Section 24(b) for interest and Section 80C for principal repayment.
2. Calculate deductions: For Section 24(b), claim up to Rs. 2 lakh per year for self-occupied property; for rented properties, there’s no upper limit. Under Section 80C, claim up to Rs. 1.5 lakh for principal repayments.
3. Verify joint loan benefits: If you have a joint home loan, ensure both co-borrowers are claiming their share. How to claim tax benefit for joint home loan involves splitting benefits proportionately.
4. Keep documentation: Maintain records like loan statements, interest certificates, and property documents.
5. File your ITR: Report the deductions accurately in your income tax return under the appropriate sections.