Home Loans not only help you achieve your dream of homeownership without straining your savings but also offer tax benefits. These benefits vary under the old and new tax regimes. It is important to know these benefits to check which one is beneficial for you. Check this blog to explore in detail about Home Loan tax benefits, both old and new tax regimes.
What Are Home Loan Tax Benefits?
Home Loans in India offer favourable tax benefits so that you can save more money on your loans. Earlier, the tax benefits were based on the old regime, but with the introduction of the new tax regime, applicants need to be aware of their choices. Home Loan tax benefits are deductions that you are allowed to claim on the principal and interest parts of your loan repayment.
Deductions You Can Claim:
- Principal Repayment under Section 80C (up to ₹1.5 lakh)
- Interest Paid under Section 24(b) (up to ₹2 lakh)
- Additional Interest Deduction under Sections 80EE and 80EEA (for first-time homebuyers)
- Stamp Duty and Registration Charges under Section 80C (only in the year of payment)
Note- These deductions apply differently in the Old and New Tax regimes.
Home Loan Tax Benefits Under the Old Regime
The old tax regime allows for various deductions and exemptions, making it a preferred choice for homebuyers with active loans.
1. Principal Repayment (Section 80C)
- You can claim up to ₹1.5 lakh annually.
- Includes repayment of principal and one-time payments like stamp duty and registration fees.
- The property should not be sold within 5 years of possession.
2. Interest Paid (Section 24(b))
- You can claim up to ₹2 lakh per year for self-occupied homes.
- For let-out (rented) properties, there is no cap on interest deduction.
- If the construction is not completed within 5 years, the limit reduces to ₹30,000.
- You can also claim pre-construction interest in five equal instalments, within the total ₹2 lakh limit.
3. First-Time Buyer Deductions
Section 80EE
- Additional deduction of ₹50,000.
- Applicable if loan is ≤ ₹35 lakh and property value is ≤ ₹50 lakh.
- Loan must be sanctioned between 1 April 2016 to 31 March 2017.
Section 80EEA
- Additional deduction of ₹1.5 lakh.
- These are allowed for properties whose stamp duty value is up to ₹45 lakh.
- Loan must be taken between 1 April 2019 to 31 March 2022.
- Cannot be claimed along with 80EE.
Home Loan Tax Benefits Under the New Regime
The new tax regime, introduced in 2020, offers lower tax rates but removes most deductions and exemptions, including those related to Home Loans.
1. Principal Repayment (Section 80C)
- There is no deduction allowed under 80C.
2. Interest Paid (Section 24(b))
- No deduction allowed for self-occupied homes.
- Let-out properties may still qualify for interest deduction without any limit, but this is subject to confirmation based on final tax rules for the year.
3. Sections 80EE and 80EEA
- These additional deductions are also not available under the new tax regime.
Comparing Old vs New Tax Regime for Home Loans
Let’s break down the tax benefits of Home Loans under both regimes to help you choose the right one.
| Benefit Type | Old Regime | New Regime |
| Principal Repayment (80C) | Up to ₹1.5 lakh | Not Allowed |
| Interest on Self-Occupied (24b) | Up to ₹2 lakh | Not Allowed |
| Interest on Let-Out | Unlimited | Unlimited* |
| Pre-Construction Interest | Within ₹2 lakh | Not Allowed |
| Section 80EE | Up to ₹50,000 | Not Allowed |
| Section 80EEA | Up to ₹1.5 lakh | Not Allowed |
| Stamp Duty & Registration Fees | Up to ₹1.5 lakh | Not Allowed |
When Should You Choose the Old Regime?
If you have a large Home Loan and are claiming other deductions like ELSS, life insurance, PPF, or tuition fees under Section 80C, the Old Tax regime will likely be more tax-efficient. If your total deductions are high, this option can help you save more tax. It works well for people who already spend money on tax-saving options every year.
When Does the New Regime Make Sense?
The New Tax regime might be suitable if:
- You’ve already repaid your Home Loan
- Your total deductions are much less than what the Old Tax regime allows
- You prefer a simplified tax filing process without maintaining proofs
What to Keep in Mind While Taking Home Loan Tax Benefits?
Taking a Home Loan can help you save tax, but you need to follow some rules to get the most out of it. Here’s what you should remember:
1. Use the loan for the right purpose
Tax benefits are only available if you take the loan to buy, build, repair, or renovate a home. If you use the money for something else, like buying a plot or commercial space, you can’t claim tax benefits.
2. Complete construction on time
If you are building a house after taking a home loan or land loan, make sure the construction is completed within the specified timeframe set by your bank to avail full tax benefits. For example, ICICI Bank requires that residential property construction be completed within 4 years of the loan disbursement for a land loan. If construction is delayed beyond this period, the interest deduction limit reduces significantly—from ₹2 lakh to just ₹30,000.
3. You must own the house
To claim tax benefits, you must be the owner or co-owner of the property. If the house is not in your name, you won’t be able to get any deduction, even if the loan is in your name.
4. Joint loans give more tax savings
If you and a family member take a joint Home Loan, both of you can claim tax benefits separately, as long as you both are co-owners and co-borrowers. This way, you can double the savings.
5. Interest paid before construction
If you start paying interest before the house is ready, that amount can also be claimed. But you can only claim it in 5 equal parts, starting from the year the house is completed. It is included in the ₹2 lakh limit.
6. Choose your tax regime wisely
If you have a Home Loan, the old tax regime may help you save more, as it offers more deductions. The new tax regime does not allow most Home Loan benefits, except in some cases like let-out properties.
Conclusion
Home Loans not only help you achieve your dream of owning a house but also offer generous tax benefits under the old tax regime. While the new tax regime offers lower tax rates, it eliminates most deductions, including those on Home Loans.
If you are an active borrower or planning to buy a house soon, the old regime could offer substantial savings. However, always compare your total tax liability under both regimes before making a decision.
