For the Assessment Year 2024-25, tax savings on home loan-financed residential properties can be achieved through Section 24, Section 80C, Section 80EE, and Section 80EEA of the Income Tax Act. You can claim deductions on both the principal and interest amounts.
Who is eligible to claim a deduction on a home loan?
According to the Income Tax Act, only the individual who has both the title to the property and the loan in their name can claim a deduction on a home loan. Specifically, the person must be:
The property owner, and
The loan borrower
Note:
Home loan deductions are only available to individuals or Hindu Undivided Family (HUF) members. Therefore, companies, partnership firms, corporate bodies, or trusts are not eligible for these deductions.
Section 24: Deductions from income from House Property
- Under Section 24, if an individual takes a home loan for purchasing or constructing a property, the interest paid on the loan’s principal amount is exempt from taxes.
The sub-clauses in this category are:
- For loans taken for self-occupied properties, individuals can claim a deduction of up to Rs. 2 lakh or the interest paid, whichever is lower.
- If the loan is for purchasing or constructing (excluding renovating) a property before it is actually bought or construction is completed, the interest can still be claimed.
- Deductions for interest paid before completion can be spread over 5 equal installments, starting from the year the house is purchased or construction is finished.
- To avail of this deduction, individuals need to calculate the interest separately from the principal repayment. The deduction is for the entire annual interest amount, regardless of whether it has been paid to the financier.
Conditions for claiming deduction under Section 24
To claim maximum deduction on the interest amount, the individual must purchase or complete construction of the house within 5 years (3 years till FY 2015-2016) of taking the loan.
The home loan must have been taken on or after 1st April 1999.
The individual must possess an interest certificate for the loan.
Certain Exceptions to Section 24
If the house remains unoccupied because the individual lives in another town due to employment or business, and resides in another property or rents in the city of employment, the tax deduction on interest payment is limited to Rs. 2 lakh.
No deduction is allowed for brokerage or commission paid for arranging the loan or tenant.
Section 80C: Home Loan Deduction on Principal Amount
Section 80C provides deduction on payment of the principal amount during the relevant financial year.
The deduction under Section 80C is either the principal amount paid or Rs. 1,50,000, whichever is lower.
Requirements for Section 80C deductions on home loans
The sole requirement for deducting home loan interest under Section 80C is that the property cannot be sold within five years of ownership.
Note:
Should the property be sold within the five-year period, the previously claimed deductions will be retroactively included in the individual’s taxable income for the year of sale.
Beyond this initial deduction, individuals are also eligible to claim for stamp duty and registration fees under Section 80C. However, these deductions are limited to a maximum of Rs. 1.5 lakhs. Importantly, these expenses can only be claimed in the year they are incurred.
Section 80EE: Deduction on home loan interest
In addition to the deductions mentioned above, Section 80EE offers a deduction for the interest paid on loans for residential properties. The highest amount that can be deducted under this section is Rs. 50,000.
Requirements for Loan Deduction through Sections 80EE
The loan amount must be Rs 35 lakhs or less.
The property’s worth should not surpass Rs 50 lakhs.
The loan approval must occur between April 1, 2016, and March 31, 2017.
At the time the loan is sanctioned, the person applying should not have any other properties. This means they are purchasing their first home.
Instructions for Section 80EEA
The property’s stamp value shouldn’t be more than Rs 45 lakhs.
The loan must be sanctioned between April 1, 2019, and March 31, 2020.
The borrower must be a first-time home buyer and have no other homes on the date the loan is sanctioned.
It is not appropriate for the person to be qualified for a deduction under section 80EE as well.
