Published on:
2025-03-14T07:29:20P+05:30
Tax Benefits of Home Loan for Salaried Employees
Homeownership is a dream for many, and for salaried employees in India, a home loan can make that dream a reality. One of the key benefits of taking a home loan is the tax relief it offers.
As per the Income Tax Act of India, home loan borrowers can claim deductions under various sections to reduce their taxable income.
This article will provide a comprehensive guide to the tax benefits available for salaried employees in 2025, focusing on home loan interest and principal repayment deductions, along with other important aspects.
1. Introduction to Home Loan Tax Benefits
In India, salaried employees can enjoy several tax benefits when they take a home loan. These benefits can significantly reduce the amount of tax you need to pay each year. Home loan tax deductions primarily relate to the interest paid on the loan and the repayment of the principal amount.
The Income Tax Act allows tax deductions under different sections, each with specific conditions. Understanding these benefits can help you save a substantial amount on your taxes while making homeownership more affordable.
2. Section 24(b): Interest on Home Loan
2.1 Eligibility Criteria for Claiming Interest Deduction
Section 24(b) of the Income Tax Act provides a deduction on the interest paid on home loans. This deduction is one of the most beneficial for homeowners, as it allows you to lower your taxable income by a considerable amount. To be eligible for this deduction, the following conditions must be met:
- The loan must be taken for the purpose of purchasing, constructing, repairing, or renovating the residential property.
- The property must be either self-occupied or rented out.
- The construction of the house must be completed within five years of availing the loan (for claiming the full deduction).
2.2 Maximum Deduction Limit
For interest on home loans, the maximum deduction allowed under Section 24(b) is Rs 2 lakh per year. This means that if you are paying more than Rs 2 lakh annually in interest, you can claim up to Rs 2 lakh as a tax deduction. However, this deduction can be claimed only if the loan is used to buy or construct a residential property.
Key Points to Remember:
- The deduction of Rs 2 lakh is available only if the property is self-occupied or rented out.
- If the construction is delayed and the house is completed after five years, you can still claim a deduction, but the limit is reduced to Rs 30,000 per year.
- This deduction can be claimed even if the property is rented out, and the rental income is taxed separately.
3. Section 80C: Principal Repayment Deduction
3.1 How Principal Repayment Deduction Works
Section 80C provides a deduction for the repayment of the principal amount of the home loan. The maximum limit for deductions under this section is Rs 1.5 lakh per year. This is part of the overall 80C limit, which includes other eligible investments like Public Provident Fund (PPF), Employee Provident Fund (EPF), National Savings Certificates (NSC), and more.
The principal repayment deduction applies regardless of whether the house is self-occupied or rented out. However, the key requirement is that the loan should be used for purchasing or constructing a residential property.
3.2 Eligible Amount for Deduction
The deduction for principal repayment is available up to a limit of Rs 1.5 lakh per annum. The principal repayment is typically shown in the annual statement provided by the bank or financial institution. This deduction can be claimed along with other investments under Section 80C.
Key Points to Remember:
- The principal repayment deduction is available for loans taken to buy or construct a residential property.
- The Rs 1.5 lakh limit under Section 80C also includes other eligible deductions, such as PPF, life insurance premiums, and tuition fees.
- For jointly owned properties, each co-owner can claim a separate deduction for their respective share of the principal repayment, provided they meet the requirements.
4. Tax Benefits for Joint Home Loans
4.1 Benefits for Co-borrowers
If you take a joint home loan with your spouse, parent, or any other family member, both borrowers can claim the tax deductions separately for interest and principal repayment. This can help in maximizing the tax benefits available on the home loan.
For instance, if both you and your co-borrower pay interest of Rs 3 lakh per year, both of you can individually claim a deduction of Rs 2 lakh each under Section 24(b), resulting in a total deduction of Rs 4 lakh.
4.2 New Tax Regime and Joint Loans
Under the new tax regime (introduced in the 2023 Budget), individuals who opt for lower tax rates are not allowed to claim tax deductions under Sections 80C, 24(b), or other similar sections. This means that if you choose to switch to the new tax regime, you will not be able to claim deductions for home loan interest and principal repayment.
However, if you continue under the old tax regime, you can still claim deductions for both interest and principal repayment.
5. Section 80EEA: Additional Interest Deduction for Affordable Housing
Section 80EEA provides an additional deduction for interest paid on loans taken to purchase affordable housing. This deduction is available if the following conditions are met:
- The loan is taken between 1st April 2019 and 31st March 2022 (extended for 2023).
- The stamp duty value of the property should not exceed Rs 45 lakh.
- The taxpayer should not own any other residential property.
Under Section 80EEA, you can claim an additional deduction of Rs 1.5 lakh over and above the Rs 2 lakh available under Section 24(b). This is available only if you meet the eligibility criteria.
6. Section 80EEB: Tax Benefit for Electric Vehicle Loans
Introduced in Budget 2023, Section 80EEB offers tax benefits on loans taken for purchasing electric vehicles. Though not directly related to home loans, it is important to mention as it encourages sustainable investments.
The maximum deduction available under this section is Rs 1.5 lakh, and it is applicable to electric vehicle loans. This is over and above other deductions.
7. TDS Adjustments and Home Loan Interest Certificate
When you take a home loan, your lender will issue an annual interest certificate that shows the interest you’ve paid during the year. This certificate is essential for adjusting the Tax Deducted at Source (TDS) that you may already be paying.
Make sure to submit this certificate to your employer for accurate TDS deductions. If you're filing your tax returns directly, you can claim the deductions by entering the relevant details in the ITR forms.
8. Key Considerations and Other Related Deductions
Stamp Duty and Registration Charges
Stamp duty and registration charges for buying a property are also eligible for tax deductions. These can be claimed under Section 80C, subject to the overall limit of Rs 1.5 lakh.
Pre-construction Interest
If you’re paying interest on a loan for the construction of a house, you can claim a deduction for the pre-construction interest. This can be spread over five years, starting from the year in which construction is completed.
9. Conclusion: Maximizing Tax Savings with Home Loans
In conclusion, the tax benefits related to home loans in India provide significant relief to salaried employees. Whether it’s the interest deduction under Section 24(b), principal repayment under Section 80C, or additional deductions for affordable housing, these provisions allow you to save money while repaying your home loan.
However, it’s important to stay updated with the latest amendments and guidelines, especially if you’re opting for the new tax regime or applying for a joint home loan. By understanding these benefits and keeping track of your home loan-related payments, you can optimize your tax savings effectively.
Frequently Asked Questions (FAQs)
- Can I claim both interest and principal deductions for the same home loan? Yes, you can claim deductions for both the interest and principal repayment on the same home loan, subject to the limits under Sections 24(b) and 80C.
- What happens if my home loan construction is delayed? If the construction of your property is delayed and completed after five years, you can still claim interest deduction, but the limit reduces to Rs 30,000.
- Can I claim deductions under both the new and old tax regimes? No, if you opt for the new tax regime, you cannot claim deductions for home loan interest or principal repayment. You must choose between the two regimes.
- What if my home loan is jointly held with my spouse? If both you and your spouse are co-borrowers, both of you can separately claim the deductions for interest and principal repayment, subject to the limits.