Home loan interest is a significant tax-saving tool under Section 24(b) of the Income Tax Act, 1961. Understanding the deduction limits, eligibility criteria, and how to claim them can help taxpayers maximize their savings. This guide covers everything you need to know about claiming interest deductions on home loans.
Maximum Deduction Allowed on Home Loan Interest
- Self-Occupied Property: You can claim up to ₹2,00,000 per annum as a deduction on interest paid.
- Let-Out or Deemed Let-Out Property: There is no upper limit—entire interest paid is deductible.
- Loan for Repairs or Renovation: Deduction capped at ₹30,000 per annum.
- Under-Construction Property: Pre-construction interest is allowed in 5 equal annual installments after the property is completed and possession is taken.
Eligibility Criteria to Claim Section 24(b) Deduction
To avail of the deduction under Section 24(b), the following conditions must be met:
- The loan must be taken for purchasing, constructing, repairing, or renovating a residential property.
- The property must be owned by the taxpayer.
- The loan should be sanctioned on or after April 1, 1999 to qualify for the ₹2 lakh limit.
- Construction must be completed within 5 years from the end of the financial year in which the loan was taken for claiming full ₹2 lakh benefit.
Deduction for Pre-Construction Interest
If the property is under construction:
- You can claim the total pre-construction interest in 5 annual installments, starting from the year of possession.
- However, if the construction takes more than 5 years, the deduction is limited to ₹30,000 per annum.
Joint Home Loans: Higher Tax Savings
When a home loan is taken jointly:
- Each co-borrower can claim a deduction of up to ₹2 lakh individually (for self-occupied property), provided they are also co-owners.
- For instance, if both borrowers pay ₹1 lakh in interest, both can claim their respective shares separately in their ITRs.
Steps to Claim Home Loan Interest Deduction
- Obtain an interest certificate from your bank or housing finance company.
- If salaried, submit the certificate to your employer to adjust TDS.
- File your income tax return by reporting the interest paid under the ‘Income from House Property’ section.
Latest Amendments – Budget 2025 Highlights
- Two properties can now be treated as self-occupied, instead of just one.
- Interest deduction of ₹2 lakh per house is available for both properties.
- This amendment significantly benefits homeowners with multiple residences.
Additional Deduction Under Section 80EEA (For Affordable Housing)
- First-time homebuyers may claim an additional ₹1.5 lakh deduction on interest under Section 80EEA.
- Applicable to loans sanctioned between FY 2019-20 to FY 2021-22 for properties valued within the affordable housing criteria.
Special Scenarios to Consider
- Rented Property: Full interest on the loan is deductible. Any loss from house property can be set off against other income.
- Two Self-Occupied Houses: Post-2025, both homes qualify for separate ₹2 lakh interest deductions.
Key Takeaways
- Maximum ₹2 lakh interest deduction for self-occupied homes.
- Full interest deduction for rented or let-out properties.
- Joint owners benefit from individual deduction limits.
- Pre-construction interest is claimable in installments.
- Keep all supporting documents, especially the interest certificate, ready during ITR filing.
For optimized tax planning, ensure your home loan qualifies for all available benefits under Section 24(b) and related provisions. Regularly check for updates in the Budget and Income Tax rules to maximize your deductions effectively.