The Homebuyer's Guide to Maximising Home Loan Tax Benefits

Buying a home is a big financial step. Most people apply for a home loan to make it happen. But a loan isn’t just about borrowing money and paying EMIs. It comes with tax benefits that can help you save money. Many homebuyers focus only on securing the best home loan interest rates when choosing a loan. However, they don’t realise that the interest and principal repayments can reduce their taxable income.

With the knowledge of tax deductions, you can cut down your overall costs and make homeownership more affordable. But to get these benefits, you first need to understand how they work. Here’s a breakdown to help you make the most of them.

Deduction on principal repayment
Home loan borrowers can claim a deduction of up to ?1.5 lakhs annually on the principal repayment under Section 80C of the Income Tax Act. This includes the EMI’s principal component and also covers registration charges and stamp duty, only if claimed in the year of payment. However, this benefit applies only if the property is not sold within five years of possession. Otherwise, the previously claimed deductions will be reversed and added to taxable income. 

Deduction on interest paid
Interest paid on a home loan qualifies for a tax deduction under Section 24(b), allowing homeowners to claim up to ?2 lakhs per year for a self-occupied property. If the property is rented out, there is no upper limit on interest deduction. However, the total loss from house property that can be set off is capped at ?2 lakhs. This benefit is applicable for loans taken to buy, construct or renovate residential properties.

Deduction for joint home loans
If a home loan is taken jointly, each borrower can claim tax benefits separately. Under Section 80C, each co-borrower can claim a ?1.5 lakhs deduction on principal repayment. Similarly, under Section 24(b), each borrower can claim up to ?2 lakhs on interest paid. However, for both individuals to avail of this benefit, they must be co-owners of the property. This effectively doubles the total tax deduction for a jointly owned property.

Pre-construction interest deduction
If you have taken a home loan for constructing a house, you cannot claim tax benefits on the interest paid during the construction period. However, once the construction is completed, the total interest paid before completion can be claimed in five equal instalments under Section 24(b), starting from the year the construction is completed. This is applicable within the ?2 lakhs annual limit for self-occupied properties.

Tax benefits on second home loans
If you take a second home loan, the tax treatment differs:

• Earlier, taxpayers could set off unlimited losses from house property against other income sources (salary, business income, etc.). But now the total deduction is capped at ?2 lakhs per year under Section 24(b).
• If the second home is let out, the rental income is taxable, but interest paid on the loan can be deducted against this income.

Conclusion 

Knowing how to maximise tax benefits on your home loan can make a huge difference to your finances. Many homebuyers focus only on EMIs, but the real advantage lies in the deductions that can reduce your tax outgo significantly.

The problem? Not everyone is aware of these benefits and missing out means paying more than necessary. Whether it’s deductions on interest, principal or additional perks for first-time buyers, understanding these tax rules can help you save money and plan smarter. Here’s what you need to know.

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