Home Loan Tax Benefits (FY 2025-26)
Maximize your home loan tax savings in 2025 with the latest deductions and benefits under the Income Tax Act.
How to Save Income Tax on Your Home Loan in 2025?
According to the guidelines of the Income Tax Act of 1961, obtaining a home loan provides several tax-saving benefits. Provisions in the latest Union Budget 2025 have further enhanced these advantages. Nirmala Sitharaman, the Union Finance Minister, announced an extension of the deadline for additional deductions on home loan interest payments. Initially extended until March 31, 2024, the new deadline has now been moved to March 31, 2026.
Tax Benefits on Home Loan
The following table gives you the tax benefits under the corresponding sections of the Income Tax Act, of 1961.
Income Tax Act | Maximum Deductible Amount |
Section 24 | Rs.2 lakh per annum |
Section 80C | Rs.1.5 lakh per annum |
Section 80EE | Rs.50,000 |
New Updates (Union Budget 2025-2026)
- The eligibility period for claiming an additional Rs. 1.5 lakh deduction on home loan interest for purchasing an affordable house has been extended until 31 March 2026.
- The tax holiday eligibility period for affordable housing projects has been extended for another year, with a new deadline of 31 March 2026.
- A new tax exemption has been introduced for notified Affordable Rental Housing Projects to encourage rental housing supply for migrant workers.
- While there were no major changes in home loan deductions, a significant Rs. 50,000 crore allocation has been made to the Pradhan Mantri Awas Yojana (PMAY) to boost affordable housing initiatives.
Deduction for interest on a Home Loan
You can avail yourself of a home loan with the sole purpose of constructing or purchasing a house. However, the construction of your house must be done within five years of the availing of the loan, your home loan has two components – principal payment and interest payment.
You can claim a deduction under your interest category of up to Rs.2 lakh under Section 24.
The maximum deduction on interest paid for self-occupied houses is Rs.2 lakh. This rule has been in effect from 2018-19 onwards.
However, if your property is a let out, then there is no limit on the interest you can claim.
However, the maximum total loss under the heading "House Property" that may be claimed is only Rs 2 lakh. From the year when the house's construction is finished, you can claim this deduction.
Deduction for interest paid on a home loan during the preparatory phase
One kind of interest that is eligible for a write-off under the Income Tax Act is pre-construction interest. A deduction in five equal installments commencing with the year the property is acquired or construction is completed is allowed in addition to the deduction from your residential property income that you would otherwise be qualified to claim. The eligibility threshold remains at Rs.2 lakh.
Take into account, for example, that you pay Rs.10,000 in interest each month on a home loan for construction. In 2022, the house's construction was completed after two years. Therefore, you cannot start making claims for the pre-construction interest of approximately Rs.2.4 lakh until the construction has been finished in five equal installments starting in 2022. However, Section 24(b) caps the total interest deduction at Rs.2 lakh, including interest from the current year plus interest from prior projects.
Home Loan Tax Benefits under Section 80C - Principal Deductions
Under Section 80C, you can claim a tax deduction of up to ₹1.5 lakh per year on the principal repayment of your home loan. This applies to both self-occupied and rented-out properties. You can also include stamp duty and registration charges, but only once.
To claim this deduction:
- The construction of the house must be completed.
- You should not sell the house within 5 years of getting possession.
- If you do sell it within 5 years, any deductions you claimed earlier will be taken back and added to your income in the year you sell it.
Tax Benefits under Section 80EE
- Allows you to avail tax benefits of up to Rs.1.5 lakh on the interest component paid on a home loan
- The benefit can be availed over and above the existing exemption of Rs.2 lakh under Section 24(b)
- The value of property must be less than Rs.45 lakh.
Home Loan Income Tax Benefits
For interest paid on home loans for affordable housing, an additional Rs.1.5 lakh tax deduction under Section 80EE can be availed till 31 March 2022. This is applicable for loans that were received till 31 March 2024. The total Income Tax Deductions that can be availed would now be up to Rs.7 lakh for this time period.
Deduction for Joint Home Loan
If the housing loan is availed by two or more persons, each of them is eligible to claim a deduction on the interest paid up to Rs.2 lakh each. Tax can be deducted on the principal paid as well for an amount up to Rs.1.5 lakhs each. However, all the applicants should also be co-owners of the property in order to claim this deduction. Therefore, a joint home loan can give you greater tax benefits.
Here is the list of deductions you can claim for a joint home loan:
Deductions | Maximum Deduction | Section of the Income Tax Act | Terms |
Interest | Rs.2 lakh | 24b | For buying or constructing a new house which must be completed within five years from the financial year end in which the loan was availed. |
Interest | Rs.1.5 lakh | 80EEA | For property which has a stamp value of up to Rs.45 lakh. |
Interest | Rs.50,000 | 80EE | For a loan amount of up to Rs.35 lakh and for property value of up to Rs.50 lakh. |
Principal | Rs.1.5 lakh | 80C | Sale of property should not be done before 5 years of possession is completed. |
Stamp Duty | Rs.1.5 lakh | 80C | Should be claimed in the same financial year as it was spent. |
Home Loan Tax Benefits of Owning a Second Property
As per the current provisions, tax benefits are applicable on payable interest. You can claim the entire paid interest amount.
It has been proposed that the second self-occupied home can also be claimed as a self-occupied one to help borrowers save more on taxes.
How to Claim Tax Benefits on Home Loans?
Claiming tax benefits on a home loan is a simple process. Below are the steps to claim your tax deduction.
Step 1: Calculate the tax deduction to be claimed.
Step 2: Ensure that the house is in your name or you are the co-borrower of the loan.
Step 3: Submit your home loan interest certificate to your employer to adjust the tax deductible at source.
Step 4: In case you don't perform the above step, you would have to file the tax return by yourself.
Step 5: In case you are self-employed, you are not required to submit these documents anywhere. Just keep them handy in case the IT department raises queries in the future.
How to Calculate Tax Benefits on Home Loan?
The easiest way to calculate your tax benefits on a home loan is by using an online calculator. Simply enter your home loan details and click on calculate and a detailed tabulation will pop up. The details you will generally need are:
- Loan Amount
- Tenure
- Interest Rate
- Loan Start Date
- Gross Annual Income
- Existing Deduction Under 80C/D
First-time borrowers may find it difficult to maximise their deductions because there are so numerous methods to reduce your taxes with a home loan. Therefore, you should be careful when selecting a lender. Select a reputable lender who can provide thorough advice on laws about home loan tax exemption.
FAQs on Tax Benefits on Home Loan
- Can I claim tax benefits if I plan on constructing the house and selling it in a few years?
If you sell the property within 5 years of possession, any tax deductions already claimed will be reversed. However, the tax exemption on interest paid will remain unchanged.
- Who is eligible to claim tax deductions on home loans?
The owner of the property can claim tax benefits. If the spouse is a co-borrower, they can also file for tax deductions. In the case of a joint loan, both parties can claim their share of the loan they pay.
- The property I purchased with a home loan is still under construction. Can I claim tax benefits?
You cannot claim tax deductions till the construction is completed. Once it is completed, you can claim an aggregate of interest paid for the period prior to the year of taking possession. This can be claimed in five equal installments from the year in which construction is completed.
- Can I claim tax benefits on loans from friends?
You can claim for tax deduction under Section 24(b) only for the interest paid. The friend will have to provide you with a certificate and will be liable to pay tax on the interest earned from the loan.
- Can I claim tax benefits on two home loans?
Generally, tax benefits can be availed only on the house claimed as self-occupied. In case if you own two houses, only one of them can be claimed as self-occupied property. The other house will be considered as a let-out property and will be taxed as per the tax slab applicable. The notional rent on your second house will be added to your income.
- Can my spouse claim an income tax deduction if we buy a house jointly?
Yes, you can claim separate deductions in your IT returns if your spouse is employed and has a separate source of income. You can both claim a deduction under Section 80C up to Rs.1.50 lakh from your total income. If the house is jointly owned, each co-owner can claim deductions up to Rs.2 lakh on account of the interest on borrowed money.
- Is the Home Loan principal part of Section 80C?
Yes, the home loan principal is part of Section 80C of the Income Tax Act. Under this section, an individual is entitled to tax deductions on the amount paid as repayment of the principal component of the housing loan. An amount up to Rs.1.50 lakh can be claimed as tax deductions under Section 80C.
However, the tax benefit on the repayment of the principal amount can be claimed only after the house is constructed. The section does not allow deductions for the repayment of the principal component during the years the house was being constructed.
- Are there any other tax deductions I can claim with respect to interest payment on the home other than the interest under Section 24(b)?
You can also claim tax deductions in respect of the interest on the housing loan under Section 80EE of the Income Tax Act. Under this section, an individual is entitled to claim tax deductions up to a maximum amount of Rs.1.5 lakh during a financial year.
- Can I claim tax benefits on the principal repaid on a housing loan?
Yes, you can avail of tax benefits on the principal amount repaid on the home loan from total income under Section 80C.
- What is the maximum amount I can avail of for deduction of interest paid on my housing loan?
Under Section 24 of the Income Tax Act, an individual can claim a tax deduction of the interest payment on the housing loan up to a maximum amount of Rs.2,00,000. You can claim this deduction if you complete the building of the house within 5 years otherwise you can claim only Rs.30,000.
News on Home Loan Tax Benefits
Home Loan Tax Benefits for ITR Filing FY 2024-25
Taxpayers can claim home loan benefits while filing ITR under the old tax regime for FY 2024-25 to reduce their taxable income. They can claim up to Rs.1.5 lakh on principal repayment under Section 80C. For self-occupied homes, individuals can get up to Rs.2 lakh on interest paid under Section 24(b). For first-time buyers, will get extra an deduction of Rs.50,000, if the loans sanctioned during FY 2016–17 under Section 80EE. Section 80EEA offers up to Rs.1.5 lakh for affordable housing loans taken between 2019 and 2022. You can claim either Section 80EE or 80EEA. In joint home loans, both co-borrowers can claim deductions separately, which will double the benefits. Also, if you sell a house and reinvest the profit in another within the time limit, you can claim capital gains exemption under Section 54. These benefits are not available in the new tax regime. Therefore, to claim deductions up to Rs.3 lakh, taxpayers need to opt for the old regime.
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