Table of Contents
- Introduction
- Tax Benefits on Principal Repayment- Section 80C
- Tax Benefits on Home Loan Interest- Section 24b
- Additional Deduction for First-Time Home Buyers- Section 80EE
- Additional Deduction for Affordable Housing-Section 80EEA
- Tax Benefits on Joint Home Loans
- Tax Exemption on Two Self-Occupied Properties
- Tax Benefits for Under-Construction Properties
- How to Claim Home Loan Tax Deductions
- Impact of Home Loan Tax Benefits on EMI Calculation
- Conclusion
- Faq's
Introduction
Owning a home is a significant financial milestone, and the Indian government provides several tax benefits on home loans to encourage homeownership. In 2025, taxpayers can claim deductions on principal repayments, interest payments, and additional exemptions for first-time buyers under various sections of the Income Tax Act.
By utilizing these tax benefits, home loan borrowers can reduce their taxable income and save a substantial amount in taxes. This guide provides accurate, up-to-date details on how home loans help in tax savings as per Budget 2025 regulations.
Home Loan
Tax Benefits on Principal Repayment- Section 80C
What is Section 80C
Section 80C of the Income Tax Act allows deductions of up to Rs 1.5 lakh per year on the principal component of your home loan EMI Equated Monthly Installment.
Who Can Claim
- The property should be owned by the taxpayer
- The property must not be sold within five years of taking possession. If sold before five years, all deductions claimed under Section 80C will be reversed and added to taxable income in the year of sale
- Joint home loan holders can claim this deduction individually, doubling the tax-saving benefit
How Much Tax Can You Save
If you are in the 30 percent tax slab, you can save Rs 45,000 per year under Section 80C on principal repayment.
Tax Benefits on Home Loan Interest- Section 24b
What is Section 24b
Section 24b allows a deduction of up to Rs 2 lakh per year on the interest paid for a home loan if the property is self-occupied.
Tax Deductions
Who Can Claim
- The deduction applies only to interest paid on a home loan taken for the purchase or construction of a house property
- The property construction should be completed within five years from the end of the financial year in which the loan was taken. If not, the maximum deduction allowed is Rs 30,000 instead of Rs 2 lakh
- In the case of a let-out or rented property, there is no upper limit on the interest deduction. However, the total loss that can be set off against other income is capped at Rs 2 lakh per year
How Much Tax Can You Save
If you are in the 30 percent tax slab, you can save Rs 60,000 per year on home loan interest payments.
Additional Deduction for First-Time Home Buyers- Section 80EE
What is Section 80EE
Section 80EE provides an additional deduction of Rs 50,000 per year on home loan interest for first-time home buyers.
Who Can Claim
- The home loan must have been sanctioned between April 1, 2016, and March 31, 2017
- The loan amount should not exceed Rs 35 lakh and the property value should not exceed Rs 50 lakh
- The taxpayer should not own any other residential property at the time of loan sanction
How Much Tax Can You Save
If you qualify for this section, you can claim a total deduction of Rs 2.5 lakh Rs 2 lakh from Section 24b plus Rs 50,000 from Section 80EE on interest payments.
Additional Deduction for Affordable Housing-Section 80EEA
What is Section 80EEA
Section 80EEA allows an additional deduction of up to Rs 1.5 lakh per year for home loan interest payments for properties that fall under affordable housing.
Tax Benefits
Who Can Claim
- The home loan must have been sanctioned between April 1, 2019, and March 31, 2022
- The stamp duty value of the house should not exceed Rs 45 lakh
- The taxpayer should not own any other residential property at the time of loan sanction
How Much Tax Can You Save
A taxpayer in the 30 percent slab can save an additional Rs 45,000 per year under this section. If combined with Section 24b, the total deduction on interest paid can go up to Rs 3.5 lakh per year.
Also Read: Closing Costs: What to Expect and How to Save
Tax Benefits on Joint Home Loans
Who Can Claim
- If a home loan is taken jointly, each co-borrower who is also a co-owner of the property can claim tax benefits individually
- Each co-borrower can claim a deduction of up to Rs 1.5 lakh under Section 80C and up to Rs 2 lakh under Section 24b
Tax Guide
How Much Tax Can You Save
In the case of two borrowers, the total tax deduction can go up to Rs 7 lakh per year Rs 3.5 lakh per borrower.
Tax Exemption on Two Self-Occupied Properties
Update in Budget 2025
- Earlier, taxpayers could claim tax benefits only on one self-occupied property, while a second house was deemed let-out and taxed on notional rent.
- In 2025, the government now allows two properties to be considered self-occupied, removing the notional rent taxation on the second home.
Maximum Tax Savings
If you own a second home, you no longer need to pay tax on notional rent, resulting in additional savings depending on the rental value.
Important Considerations
- Completion of Construction
- To claim tax deductions, the construction of the property must be completed.
- Loan Purpose
- The home loan should be for the purchase or construction of a house.
- Loans taken for repairs or renovation do not qualify for all tax benefits.
- Documentation
- Maintain all loan-related documents, including:
- Sanction letter
- Interest certificate
- Possession certificate
- Home loan EMI payment proof
Also Read: How The Repo Rate Affects Homebuyers And Things A Buyer Needs To Know About It
Tax Benefits for Under-Construction Properties
Tax benefits on home loans for under-construction properties are available only after the construction is completed and possession is handed over to the borrower. Until the property is completed, you cannot claim deductions on either the interest or principal repayments. This rule ensures that tax benefits are provided only for properties that are ready for occupancy, encouraging timely construction and possession.
Tax Benefits for Under construction Property
However, the interest paid during the pre-construction phase can still be claimed in a deferred manner. Once the property is complete, you are allowed to deduct the total pre-construction interest in five equal annual installments, starting from the year of possession. This allows borrowers to recover some of the costs incurred during the construction period, but no deductions are available for principal repayment during this phase.
How to Claim Home Loan Tax Deductions
To claim home loan tax benefits, you will need to submit a home loan interest certificate to your employer or directly while filing your income tax returns. This certificate can be obtained from your lending institution, and it details the total interest paid during the financial year.
Ensure that you keep the following documents ready:
- Home loan statement.
- Proof of ownership.
- Loan repayment receipts.
- Property registration documents.
Also Read: Construction Linked Payment Plans in India: Everything You Need to Know
Impact of Home Loan Tax Benefits on EMI Calculation
Home loan tax benefits, while reducing your taxable income, do not have a direct impact on your monthly EMI payments. The EMIs are calculated based on the loan amount, interest rate, and loan tenure, and they remain constant (for fixed-rate loans) regardless of the tax benefits. However, the tax deductions you receive on home loan interest and principal repayment reduce your overall tax liability, which means you pay less in taxes each year.
EMI Calculation
This reduction in tax liability effectively increases your disposable income, making it easier to manage your monthly EMIs. With more money in hand due to lower taxes, you may find it less financially burdensome to meet your EMI obligations. By carefully planning your tax deductions and managing your cash flow, you can improve your overall financial health and ensure that your loan repayment becomes more manageable over time.
Conclusion
Home loans provide significant tax benefits, helping borrowers save up to Rs 3.5 lakh per year under Sections 80C, 24(b), 80EE, and 80EEA. Joint home loan borrowers can claim up to Rs 7 lakh per year, making it an effective tax-saving strategy.
With new exemptions in Budget 2025, such as the removal of notional rent tax on the second self-occupied property, homeownership is becoming even more tax-efficient.
If you are planning to take a home loan in 2025, understanding these tax-saving opportunities will help you maximize your benefits and reduce your tax burden.
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