Unlocking tax benefits with your home loan: A guide to smarter savings

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Owning a home doesn't just offer long-term financial stability—it also brings powerful tax-saving opportunities. If you're servicing a home loan, both the principal and interest components of your EMI (Equated Monthly Instalment) can be used to reduce your taxable income under different sections of the Income Tax Act. Here's how you can optimise those benefits and make the most of your loan repayments.

Tax benefit on principal repayment under Section 80C

One of the most straightforward ways to claim a deduction is under Section 80C, which allows you to deduct up to ₹1.5 lakh annually for principal repayments on your home loan. This section also includes other instruments like PPF, EPF, life insurance premiums, and ELSS, so your total claim under 80C is capped at ₹1.5 lakh across all eligible avenues.

To be eligible:

• The home must not be sold within five years of possession, or the claimed deduction will be reversed.
• The loan must be from a recognised financial institution.

Section 24(b) provides a separate deduction of up to ₹2 lakh per year on the interest portion of your home loan EMI. This is available only if the house is self-occupied. If it's rented out, there is no cap on the interest deduction (though overall losses from house property are capped at ₹2 lakh in a financial year).

To be eligible:

• The construction or purchase must be completed within five years.
• Proper interest certificates from the lender must be submitted.

If you're a first-time homebuyer, there’s additional room for savings:

• Under Section 80EE, you can claim an extra ₹50,000 on interest over and above Section 24(b), provided the loan was sanctioned between April 1, 2016, and March 31, 2017, and the home’s value is under ₹50 lakh.
• Section 80EEA offers up to ₹1.5 lakh extra interest deduction for loans sanctioned between April 1, 2019, and March 31, 2022, for homes valued up to ₹45 lakh. You must not own any other property to claim this.

If you’ve taken a joint home loan (for example, with your spouse or parent) and you're both co-owners and co-borrowers, each borrower can independently claim deductions. That means each co-borrower may claim:

• Up to ₹1.5 lakh under Section 80C for principal
• Up to ₹2 lakh under Section 24(b) for interest

When your house is under construction

If your property is still under construction, you cannot claim Section 24(b) interest deductions until possession. However, you can claim a pre-construction interest benefit, which allows you to deduct the interest paid during the construction phase in five equal instalments starting from the year of possession.

Optimise your tax planning smartly

To get the full benefit:

• Maintain proper home loan statements and interest certificates from the lender.
• If you're eligible for 80EE or 80EEA, ensure you meet the conditions related to loan sanction dates and property value.
• Consider the timing of property possession strategically, especially to ensure Section 24(b) eligibility.
• Choose joint ownership when possible to maximise deductions within the family.