Home Loan Tax Benefits Explained: Section 24(b) and 80C
How much tax a home loan can save depends on your tax regime and how your EMI splits between interest and principal. A clear, worked guide.
A home loan can reduce your income tax — but how much depends on which tax regime you choose, whether the home is self-occupied or let out, and how your EMI splits between interest and principal. This guide explains the main deductions with a worked example. Tax rules change from year to year, so confirm the current position with the Income Tax Department or a tax adviser before you file.
Key takeaways
- Under the old tax regime, interest on a self-occupied home loan is deductible up to ₹2 lakh a year under Section 24(b).
- Principal repayment can be claimed under Section 80C, within its overall ₹1.5 lakh limit.
- The new tax regime does not allow these deductions for a self-occupied home.
The two main deductions
Section 24(b): interest
Interest paid on a loan for buying or constructing a house can be deducted from income. For a self-occupied property, the deduction is capped at ₹2,00,000 a year under the old regime. For a let-out property, interest is deductible against rental income, with limits on how much loss can be set off against other income.
Interest paid before construction is complete (pre-construction interest) can generally be claimed in five equal instalments starting from the year of completion, within the same overall limit.
Section 80C: principal
Principal repaid during the year, along with stamp duty and registration charges in the year of purchase, can be claimed under Section 80C. The limit of ₹1,50,000 is shared with other 80C items such as EPF, PPF, ELSS and life insurance premiums.
How your EMI splits — a worked example
For a ₹50 lakh loan at 8.5% for 20 years (EMI ₹43,391):
| Interest paid | Principal repaid | |
|---|---|---|
| Year 1 | ₹4,21,182 | ₹99,511 |
| Year 5 | ₹3,81,053 | ₹1,39,641 |
In year 1, interest is over ₹4.2 lakh, but only ₹2 lakh is deductible for a self-occupied home. The principal of about ₹99,511 fits within 80C — if you are not already using the limit for EPF or other investments.
For someone in the 30% slab (plus cess) under the old regime, deducting ₹2 lakh of interest saves roughly ₹62,000 in tax for the year.
Joint home loans
If a property is jointly owned and both owners are co-borrowers repaying the loan, each can usually claim the deductions separately, up to their own limits. For a couple with two incomes, this can double the total benefit.
Old regime or new regime?
The new tax regime has lower slab rates but removes most deductions, including Section 24(b) interest on a self-occupied home and Section 80C. Whether the old regime with home loan deductions is better depends on your total income and all the deductions you can claim. Compare your tax under both each year.
Tax benefits reduce the effective cost of a home loan, but they should not be the main reason to borrow more or to avoid prepaying. A rupee of interest saved by prepaying is worth more than the tax deduction on that rupee.
See your yearly interest and principal
The Home Loan EMI Calculator shows the interest and principal for every year of your loan in the repayment schedule, and you can download it as a CSV for tax planning. Read more on how to read your amortization schedule.
This article is for general information only and is not financial, tax or legal advice. Rates, rules and products change — check current terms with your lender or a qualified adviser. Disclaimer.