Income Tax Benefit on Home Loan

Home Loan Tax Benefits Under Old vs New Tax Regime

The table below shows the difference between the old and the new tax regime in terms of home loan tax deductions. Note that if you choose the new tax regime, you cannot claim most home loan deductions, except interest on let-out property.

*Loss from house property is capped at ₹2 Lakh for set-off against other income.

Home Loan Tax Benefit on Interest Component

Under the old tax regime, you can claim an income tax deduction on the interest paid for your home loan under sections 24B, 80EE, and 80EEA. 

Some terms common to all sections are that the property or land must be new, and the construction on a property must end within 5 years of taking the loan.

Other terms are mentioned in detail below - 

Section 24B

This is applicable for loans that were sanctioned between 1st April, 2022 to 31st March, 2023. 

Under this section, you are allowed to claim deductions up to ₹2 Lakh. In case your interest is less than ₹2 Lakh, you can claim the full amount.

This can be claimed for properties that you have occupied as well as properties you have rented out, only if you follow the old tax regime. Under the new tax regime, only properties that have been rented out can claim deductions under this section.

Section 80EE

This is applicable for loans that were sanctioned between 1st April, 2016 to 31st March, 2017. 

The maximum claim applicable under this section is ₹50,000. To claim this, your loan amount should be under ₹35 Lakh, and the total valuation of the property should be under ₹50 Lakh. The taxpayer should be a first-time home buyer and must follow the old tax regime.

80EEA

This is applicable for loans that were sanctioned between April, 2019 to March, 2022. 

The maximum amount that can be claimed is ₹1.5 Lakh, but the stamp value of the property should be under ₹45 Lakh. The taxpayer should be a first-time home buyer and must follow the old tax regime.

Housing Loan Tax Exemption for Property Renovation

If you were searching for ‘interest on home loan deduction’, but have not purchased a new house, don’t worry. Even if you have applied for a loan to renovate your house, you can avail a tax exemption. 

Under Section 24, you can claim a deduction of up to ₹30,000 if your loan was sanctioned between 1st April, 2022, and 31st March, 2023. 

Home Loan Tax Benefit on Principal Component 

Just like you can claim deductions on the interest paid, there are certain benefits to be claimed on the principal component as well. 

Section 80C has a maximum deduction of up to ₹1.5 Lakh. Please note that this section also includes your PPF, insurance, childcare, etc. 

Income Tax Benefit on Home Loan - Stamp Duty & Registration Fees

Section 80C can also include the amount spent on stamp duty and the registration fees for a new property.
Please note that the maximum amount that can be claimed under this section is ₹1.5 Lakh, and includes the home loan’s principal amount, stamp duty, and registration fees.

Housing Loan Tax Exemption in Joint Home Loan

There are many benefits that can be availed in case you co-own a house with a family member. 

The person must be a co-applicant in the loan and not a guarantor. In such a case, all housing loan interest deductions will be applicable to each applicant. 

For example, if you apply for a loan with your spouse, both you and your spouse can claim ₹2 Lakh (each) as interest deduction. What this means is that if your interest component is under ₹2 Lakh, you can equally divide the claim by 50%. But if the claim is ₹4 Lakh, you can both claim ₹2 Lakh. 

Housing Loan Tax Benefit for Pre-construction Property

Home loans are often taken for properties that are still under construction. You can claim tax benefits for loans taken on pre-construction property, where you still haven’t received possession.

The condition is that you have to wait for the construction to be completed in order to claim the deductions, and the construction should be completed within 5 years. You can avail a tax benefit in 5 equal installments over 5 years, post construction.

In case you are living in a rented apartment during this time, you can also claim deductions under the HRA component. 

Interest on Housing Loan Deduction for AY 2022-23

All the above deductions are valid as long as you fulfill the terms and conditions. So, the total deductions you can avail on the interest paid for your home loan can go up to ₹3.5 Lakh. 

This is applicable if you were a first-time home buyer between April 1, 2019, and March 31, 2020. The deductions can be claimed under Section 24 and Section 80EEA.

The only change that has been made in the new budget is related to the sale of a property. You have to pay capital gains tax when you sell a residential property. 

Previously, tax was charged on the difference between the sale price and what you paid to acquire the house, which includes the interest paid on the home loan. 

In the new budget, while computing the cost of acquisition, you have to exclude the amount you claimed as a tax deduction on the interest paid every month.

Which Tax Regime Is Better If You Have a Home Loan?

Both the tax regimes have their merits and demerits. Choose the old tax regime if:

• Your interest and principal deductions are high

• You are paying large EMIs

• You qualify for 80EE / 80EEA

Choose the new tax regime if:

• You do not claim major deductions

• You prefer lower tax rates with fewer exemptions