Claim Up to ₹2 Lakh! Home Loan Interest Tax Deduction Explained

Owning a house is a dream for many in India, and a home loan makes it possible. But with a home loan, you must pay equated monthly instalments or EMIs that increase your cash outgo. To make this easier, the Indian government offers several tax breaks to help you save money. The home loan interest deduction section 24(b) is one of the most important. 

If you have taken a home loan, you could claim up to ₹2 lakh yearly just on the interest you pay under this section. But what is this section, and how can you claim a home loan interest tax deduction? Let us find out. 

What is Section 24 of the Income Tax Act?

There are two main parts under Section 24:

1. Standard Deduction: 24(a)

You can claim a standard deduction of 30% on the net annual value (rent received minus property taxes) if the house is rented out or deemed to be let out. 

But this deduction is not available for self-occupied homes, as their annual value is treated as zero.

2. Deduction on Interest Paid: 24(b)

This section provides a deduction for interest paid on home loans. You can claim this benefit whether you live in the property or rent it out. Although the rules differ slightly for each case.

But there are limits on the deduction of interest on home loans. 

Tax Deduction on Interest on Home Loan Limits  

Let us look at the interest on home loan deduction limits more closely:

Let-out Property:

You can claim a deduction for the full interest paid on a home loan if your house is rented out. It could be on a home loan taken to buy, build, repair, or renovate the property. There is no upper limit on the interest amount you can claim under this case.

Self-Occupied Property – Purchase or Construction:

For a self-occupied home, you can claim up to ₹2 lakh per year as a deduction for home loan interest. This benefit is available only if:

• The loan is taken on or after April 1, 1999 
• If the loan is used for buying or building the property
• The construction or purchase must be finished within 5 years from the end of the financial year in which you took the loan.

This cap is central to claiming the interest on home loan tax deduction correctly.

Self-Occupied Property – Repairs or Renovation:

The deduction limit will be up to ₹30,000 per year if the loan is taken for repairs, renovation, or reconstruction. Also, if the new house is not constructed within five years, the deduction limit will fall to ₹30,000. 

Pre-Construction Interest:

Any interest paid before the year of completion or possession of the house can be claimed in five equal instalments, starting from the year the home is completed or acquired. This applies to both self-occupied and let-out properties. But the limit is ₹2 lakh per year, and the loan must be taken only to construct a new house. 

Also, you can claim tax deductions on home loan interest on two self-occupied homes instead of just one. But the total deduction limit stays the same: ₹2 lakh per year (or ₹30,000, depending on the type of loan).

Additional Deduction under Section 80EE/80EEA

If you buy your first home, the government offers an additional tax benefit on home loan interest through these sections, in addition to Section 24(b).

Section 80EE

You can claim an additional ₹50,000 deduction on interest if:

• Loan is taken between April 1, 2016, and March 31, 2017
• Loan amount ≤ ₹35 lakh and property value ≤ ₹50 lakh

Section 80EEA

You can claim up to ₹1.5 lakh deduction on interest paid if:

• Loan is sanctioned between April 1, 2019, and March 31, 2022
• Stamp duty value of property ≤ ₹45 lakh 
• No deduction u/s 80EE has been claimed 

Can You Get Home Loan Interest Deduction Under the New Regime? 

The new tax regime offers lower tax rates but removes most deductions and exemptions, including home loan tax benefits.

You won’t get any deduction for interest or principal under the new regime if you pay EMIs on a self-occupied house. The only exception is that if your property is rented, you can still claim a deduction on the interest paid under Section 24(b).

Conclusion

The home loan interest tax deduction is a great and legal way to save up to ₹2 lakh annually on taxes. The deduction limit is ₹2 lakh for self-occupied homes, while rented properties have no limit. First-time home buyers can also get more deductions under Section 80EE/80EEA. 

That said, follow the home loan interest tax benefit rules to qualify for the deduction and to reduce your tax burden.

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