Home ownership in India often involves significant costs, not just in purchasing but also in construction, renovation, and making the property habitable. To ease this financial burden, the Income Tax Act provides structured tax benefits on home loans, depending on the tax regime opted for and the nature of the property.These benefits are primarily available under the old tax regime, while the new tax regime offers limited deductions.
Key tax benefits on home loans
Under the old tax regime, taxpayers can claim deductions on both principal and interest components of a home loan.Principal repayment is eligible for deduction under Section 80C of the Income Tax Act, 1961, up to Rs 1.5 lakh per financial year, subject to overall limits under the section.Interest on home loans for self-occupied property is eligible for deduction under Section 24(b), capped at Rs 2 lakh annually. For let-out properties, the entire interest on a home loan is generally eligible for deduction under Section 24(b), provided the borrowing is genuine and used for acquisition, construction, repair, or reconstruction of the property, and the property is classified as let-out or deemed to be let-out under the income tax rules.Additional benefits are available in specific cases. Section 80EE allows a deduction of up to Rs 50,000 on interest for eligible first-time homebuyers, while Section 80EEA provides an additional deduction of up to Rs 1.5 lakh for qualifying affordable housing loans sanctioned within specified timelines.Under the new tax regime, most deductions linked to home loans, including Section 80C and Section 24(b) for self-occupied properties, are not available. However, interest on loans for let-out properties continues to be eligible for deduction.Other provisions include deduction of pre-construction interest, which can be claimed in five equal instalments after completion of construction, and set-off of loss under the head “income from house property” up to Rs 2 lakh under the old regime.
How to claim these benefits in ITR
To claim home loan tax benefits, taxpayers must report the principal repayment and interest paid under the relevant schedules of their income tax return.
- Principal repayment is reported under Section 80C deductions
- Interest on home loan is reported under income from house property
- Pre-construction interest is claimed in five equal instalments starting from the year construction is completed
- Supporting documents such as loan statements, not required at filing, but may be requested if the return is picked up for scrutiny or verification.
Accurate disclosure in the ITR is essential to ensure correct computation of taxable income and to avoid mismatches during processing.