Tax Exemption on Home Loan Interest: Maximise Your Savings

Learn how much home loan interest is exempt from tax and discover strategies to reduce your taxable income while financing your dream home.
Home Loan
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2 min
18 December 2024
Owning a home is a lifelong dream for many. It represents comfort, security, and a significant milestone. But with the rising costs of real estate, financing a home purchase often requires a home loan. What if we told you that a home loan does not just help you afford a house but also offers substantial tax savings?

Yes, the interest you pay on your home loan can reduce your tax liability. Let us explore how much home loan interest is exempt from tax and uncover strategies to maximise these benefits.

What is the tax exemption on home loan interest?

The government encourages homeownership through tax benefits on home loans. Section 24(b) of the Income Tax Act allows you to claim a deduction on the interest you pay on your home loan.

  • For a self-occupied property: You can claim up to Rs. 2,00,000 as a tax deduction on the interest paid each year.
  • For a property that is rented out: There is no upper limit on interest deduction. However, the total loss that can be set off under the "income from house property" category is capped at Rs. 2,00,000 per year.

Eligibility for tax exemption

To claim tax exemption on home loan interest, you need to meet the following conditions:

  • The loan should be for purchasing or constructing a property.
  • The construction should be completed within five years from the end of the financial year in which the loan was taken.
  • You must be the owner or co-owner of the property.
  • The interest deduction applies only to the property used for residential purposes.

Additional benefits under Section 80EE and 80EEA

Apart from Section 24(b), first-time homebuyers can claim additional benefits:

  • Section 80EE: If the loan amount is Rs. 35 lakh or less and the property value does not exceed Rs. 50 lakh, you can claim an additional deduction of Rs. 50,000 on the interest paid.
  • Section 80EEA: Introduced for affordable housing, this provides an extra deduction of up to Rs. 1.5 lakh on interest for loans sanctioned between April 1, 2019, and March 31, 2022.
When combined with Section 24(b), these additional deductions can maximise your tax savings.

Tips to maximise your savings

  • Opt for a joint home loan: If you and a family member (spouse, parent, or sibling) co-own the house, you can each claim up to Rs. 2,00,000 on interest. This doubles your tax savings.
  • Choose under-construction properties: While waiting for the completion of your property may seem inconvenient, the interest paid during this period can be claimed in five equal instalments post-completion.
  • Keep your documents handy: Ensure you have your loan statement, ownership proof, and completion certificate to claim deductions. This helps during tax filing and in case of an audit.

Understanding principal deductions under Section 80C

Besides interest, the principal amount repaid on your home loan is also eligible for tax benefits under Section 80C. You can claim up to Rs. 1.5 lakh annually. However, this is subject to the overall limit of Rs. 1.5 lakh for Section 80C, which includes other investments like PPF, ELSS, and insurance.

Explore Bajaj Housing Finance Home Loam

Owning a home is not just about having a roof over your head—it is about investing in your future. And with tax exemptions on home loan interest, you can make your dream home more affordable while maximising your savings.

If you are planning to buy a home, Bajaj Housing Finance offers tailored home loan solutions with competitive interest rates. Here are some benefits of opting for a home loan with us:

1. High loan amount: Secure funding up to Rs. 15 crore* to turn your dream home into reality.

2. Low interest rates: Enjoy interest rates starting 7.99%*  p.a., and EMIs as low as Rs. 722/lakh*.

3. Quick approval: Get approved within 48 Hours* of applying – sometimes even sooner.

4. Flexible repayment tenure: Choose a repayment term of up to 32 years for comfortable EMIs.

5. Simple application: Take advantage of doorstep document collection for a smooth process.

6. Balance transfer facility: Move your existing home loan and get a top-up loan with better terms.

Start your journey today and make your dream home a reality while enjoying maximum tax savings.

Frequently asked questions

Can I claim tax benefits on home loan interest if the property is under construction?
No, you cannot claim tax benefits while the property is under construction. However, the interest paid during this phase can be claimed in five equal instalments after construction completion, starting from the year the property is ready for use.

Can I claim tax deductions for both Section 24(b) and Section 80EE?
Yes, you can claim deductions under both sections if eligible. Section 24(b) allows up to Rs. 2,00,000 for interest on self-occupied property, while Section 80EE offers an additional Rs. 50,000 for first-time homebuyers meeting specific criteria.

Can I claim tax exemptions on home loan interest under the new tax regime?
No, the new tax regime does not allow exemptions or deductions for home loan interest or principal repayments. To claim these benefits, you must opt for the old tax regime.

What should I know about tax deductions if I sell the property within five years?
If you sell the property within five years of possession, deductions claimed under Section 80C for principal repayment will be reversed and added to your taxable income in the year of sale.

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