What are Home Loan Tax Benefits?

home loan tax benefit calculator video

One of the important factors when buying a new house is what are home loan tax benefits you can get? Many Indians have a dream to own a house for which they probably have to take a home loan which provides you income tax benefits including Rs. 1.5 Lakh under Section 80C and Rs. 2 Lakh under Section 24. You also get benefits of Rs. 50,000 under Section 80EE if you are a first time home buyer with interest amount more than 2 lakh in a financial year.

Let us see the home loan tax benefits in detail.

Table of Contents

Home Loan Tax Benefits Video

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Home Loan EMI Calculation Overview

Before understanding the various income tax benefits with home loan, let us understand the EMI calculation and how principal and interest amounts are related in home loan:

  • When buying a new house on home loan, EMI is calculated using Home loan calculator
  • The monthly EMI amount will consist of 2 components – Principal Amount and Interest Amount
  • The principal amount is low initially and increases with the tenure
  • On other hand, interest amount in EMI is high initially and decreases with time
  • Your EMI is kept same throughout the tenure, unless you want to change it with home loan prepayments or tenure increase or decrease
  • The principal and interest amounts are adjusted every month based on above criteria
  • You can watch above video in full to understand how principal and interest amounts are calculated every month based on the EMI amount

Tax Benefits on Principal Amount

  • So the principal amount under EMI that is calculated every month can be claimed under Section 80C with Old Tax Regime
  • You can claim maximum of Rs. 1.5 Lakh under this Section 80C in a financial year
  • Note that you cannot claim Section 80C deductions with new tax regime since it has very less deduction options and low tax slab rates
  • So even if you have paid Rs. 3 lakh as home loan principal amount in a financial year, you will be allowed to claim only Rs. 1.5 Lakh in this section

Tax Benefits on Interest Payments

  • The other component, that is interest amount under EMI can be claimed under Section 24 with a maximum limit of Rs. 2 lakh in a financial year
  • This limit is in addition to Rs. 1.5 lakh under Section 80C, so a total of Rs. 3.5 lakh can be claimed all together in a financial year
  • Note that Rs. 2 lakh limit is for self occupied property
  • If the property is let out than there is no upper limit for the interest amount that you can claim in financial year
  • Again, if the property is self occupied than you can claim Rs. 2 lakh with section 24 under old tax regime
  • New tax regime also allows this deduction only when the property is let out – rented accommodation

DOWNLOAD Home Loan Excel Calculator

Download Home Loan Excel

Click above link to download home loan excel calculator that will help you to know principal and interest amounts for your home loan in every financial year

Additional Benefits for first-time home buyers

  • Apart from Section 80C and Section 24, you get additional Rs. 50,000 benefit if you are a first time home buyer under Section 80EE
  • This section is applicable only when you have exhausted the Rs. 2 lakh limit under Section 24 for interest amount
  • Principal amount is not eligible for this section
  • Remember that you should not own any other property while claiming this additional Rs. 50,000 deduction under Section 80EE

Joint Home Loan Advantages

You get good benefits when you take joint home loan with spouse

  • You both get to claim the deductions under Section 80C and Section 24
  • Contribute towards payment of home loan as a family if both are working professionals
  • Can close the loan before time using home loan Prepayments

Watch below video to understand how home loan prepayments can help you Save Interest Amount

Home Loan Prepayments to Save Interest Amount Video

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Tax Benefits with New Tax Regime

  • So far we have seen the tax benefits under old tax regime, but there is one case where you get home loan income tax benefits with new tax regime as well
  • You can claim the interest amount in home loan with new tax regime, only when the property is let out – rented accommodation
  • So if you are buying the property for investment purpose and take a home loan for it and rent it out, the interest amount you pay every year can be claimed under Section 24 with new tax regime
  • This is a good option for those who do not claim other deductions and want to opt for new tax regime to save income tax

ALSO READ: Other Deductions in New Tax Regime

Conclusion

So home loan provides you with great income tax benefits including Section 80C with limit of Rs. 1.5 lakh and Section 24 with limit of Rs. 2 lakh in financial year.

If you are first time home buyer, you can claim additional Rs. 50,000 as interest amount under Section 80EE. For let out property, there is no max limit for Section 24 as well, which seems to be attractive for investment purposes.

But is is also important to close your loan as early as possible so that you save interest amount as well, since getting income tax benefits is not the only purpose of taking a home loan, so you can check the home loan prepayments video mentioned above to save interest amount.

Some more Reading:

Frequently Asked Questions

Is a home loan under 80C or 80d?

Home Loan Principal amount can be claimed under Section 80C. Section 80D refers to the medical insurance premiums that can be claimed.

What is the tax benefit cap for home loan?

With Section 80C, you can claim maximum of Rs. 1.5 lakh in a financial year, and with Section 24, you can claim Rs. 2 lakh in a financial year, so a total of Rs. 3.5 lakh can be claimed as tax benefit cap for home loan. Note that for let our property, there is no maximum cap under Section 24.

How much tax will reduce if I take home loan?

Depends on your EMI amount which consist of Principal amount and Interest amount. Usually the principal amount can be claimed with a maximum amount of Rs. 1.5 lakh in financial year, and maximum of 2 lakh can be claimed as interest with Section 24.

But with time, the interest amount every year decreases, thus you wont be able to claim entire Rs. 2 lakh since you will be paying less interest amount in later stages of home loan. Also, this is a good thing since you don’t want to pay interest amount on home loan forever just to save income tax!

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Income Tax Calculator App – FinCalC

For Income Tax Calculation on your mobile device, you can Download my Android App “FinCalC” which I have developed for you to make your income tax calculation easy.

What you can do with this mobile App?

  • Calculate Income Tax for new FY 2024-25 and previous FY 2023-24
  • Enter estimated Investments to check income tax with Old and New Tax Regime
  • Save income tax details and track regularly
  • Know how much to invest more to save income tax
  • More calculators including PPF, SIP returns, Savings account interest and lot more
Download Income Tax Calculator APP from play store
Download Income Tax Calculator APP from play store

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