Understanding Tax Benefits On Home Loans

  • Added:
    Mar 14, 2014
  • Article Views:
  • Word Count:
Understanding Tax Benefits On Home Loans Photo by Aishwarya Mahurkar

Most loan borrowers know that a home loan EMI payment can be deducted from the final taxable annual income. However, it can get a bit more complicated than that. Your repayments are divided into two segments i.e. principal amount repayment and interest amount repayment. These two components of a housing loan  are treated differently under various sections of the Income Tax Act. So, when you avail a loan, you must understand the amount being deducted as the principal and interest in order to realize the potential deductions in your taxable income. The principal amount deduction, in case of most loans, is limited to Rs. 1, 00,000. For a self-occupied property though, you can get a maximum tax deduction of Rs. 1, 50,000. Take a look at some of the points that need to be kept in mind. 

Principal amount:

When you buy a home with housing finance options, the Indian income tax section 80C allows you tax deductions on the principal amount paid by means of EMIs.  If you buy land and construct your house on it with the help of a home loan, then you can get tax exemption on the plot loan and construction too. However, plot loans are a bit complicated when it comes to the terms and conditions that allow tax exemptions.

Interest amount:

The interest rate on a house loan  is income tax deductable as per the Income Tax Act Section 24. Interest paid on loans taken for land purchase, construction, home repairs and reconstruction of residential property are also tax deductable. However, these income tax rules vary if the property is not self-occupied. You must also note that the income tax rules and regulations for the principal amount and interest amount vary considerably.

Budget 2013:

Union Minister of Finance P. Chidambaram’s current budget plan provides additional tax benefits for the financial year of April 2013 to March 2014.  These include an additional deduction of Rs. 1, 00,000 being available on self-occupied and non-self-occupied properties for all loans sanctioned during this financial year. This is especially good news if you opt for a new home loan with a co-applicant because this benefit is available for both applicants separately under Income Tax Act Section 80EE. All these benefits are available for users who already avail the tax benefit of HRA allowance.  This tax benefit under Income Tax Act Section 80EE is available for the financial years 2014 – 15 and 2015 -16.


All this boils down to a few simple facts. When you take home loans, you can enjoy tax benefits as per your income tax slab. This can be a great way to pay lesser tax for a similar or higher income bracket. If you buy another property using housing finance, your principal and interest are also tax deductible. However, you must keep in place the certificate issued by different housing finance companies in India to claim this benefit on the paid amount.

Author's Profile

Aishwarya Mahurkar is an experienced writer concerning the finance industry. Her articles help in informing her readers of the components of a housing loan and the interest rate on a house loan.

Please Rate this Article
Poor Excellent