ITR Filing: All You Need To Know About Home Loan Deductions

For many Indians, owning a home is a major financial goal and has deep emotional significance. However, the need for huge investment and the rising real estate cost deters many from exploring the options to buy their first residential property.

To fulfil this dream, many people opt for home loans, which can be a significant financial commitment. These loans can extend over several years and without a sizable down payment, borrowers may need to pay high interest over a long period.

To help them deal with this, the government offers deductions on the interest and principal paid for home loans. This helps the borrowers to reduce their taxable income, leading to an overall lower tax liability.

However, this option is only available for individuals who opt for the old tax regime. Under the new tax regime, only limited deductions can be claimed on interest paid for home loans. The taxpayers, opting for the new tax regime, won't be eligible for most other deductions such as home loan benefits for self-occupied property.

How To Claim Home Loan Benefits In ITR?

Taxpayers can claim deductions on home loan interest and principal payments under sections 80C, 80EE, 80EEA and 24(b) of the Income Tax Act, 1961.

A home loan includes two parts: principal and interest. One can claim tax deductions on both. The principal repayment qualifies for deduction under Section 80C, while the interest paid on the loan is eligible for deduction under Section 24(b).

Let's take a look at various deductions allowed on home loan interest and principal paid in a financial year:

Section 80C

Allows a tax deduction of up to Rs 1.5 lakh on the principal repayment for a home loan. However, the residential property should not be sold within five years of possession. You can also claim the deductions for the payments towards stamp duty and registration within the overall Rs 1.5 lakh limit. This benefit is only available under the new tax regime.

Section 24(b)

Provides a tax deduction of up to Rs 2 lakh on the interest paid on a home loan availed for the construction or purchase of a house. The construction should be completed within five years from the end of the financial year in which the loan was secured, otherwise, the deduction will be capped at Rs 30,000. This is applicable for self-occupied property, but there is no upper limit on deductions for let-out property.   

Section 80EE and Section 80EEA

You can claim an additional deduction under Section 80EE for a maximum of Rs 50,000 in a financial year on the interest paid for a home loan. To claim this benefit, the loan amount should be less than Rs 35 lakh and the value of the property should not exceed Rs 50 lakh.  

On the other hand, under Section 80EEA, a deduction up to Rs 1.5 lakh can be claimed on the home loan interest payment by first-time homebuyers. In this case, the value of the property should not exceed Rs 45 lakh. It's important to note that this benefit cannot be claimed if the taxpayer is opting for deductions under Section 80EE.