Home loan is the option that helps you save maximum income tax. Let’s analyze how much income tax you can save with Home Loan!

When to claim Income Tax Deduction?

  • If you buy a fully constructed house property, you can immediately claim income tax deduction.

  • If you are constructing a house, you can claim income tax deduction only after the house construction is completed.

Income Tax Home Loan
Housing Loan EMI

Components of Housing Loan EMI

Home Loan EMI has two components:

  • Principal Repayment &

  • Interest Payment

Income Tax Sections

  • Principal Repayment comes under Section 80C which has a limit of INR 1.5 lakhs.

  • The stamp duty and registration charges can also be claimed under Section 80C.

  • Interest payment comes under Section 24 and it has a limit of INR 2 lakhs.

Income tax Home Loan
Home Loan Eligibility

Conditions for Eligibility

  • You can claim Income tax deduction for purchase or construction of a house property.

  • The construction of the house must be complete within 5 years after availing loan.

  • If you sell the house property within 5 years, all the income tax deduction will be reversed.

  • Deduction can be availed for self-occupied or let-out property; for a maximum of two properties.

  • Joint borrowers can claim tax deduction on the same property! If interest payment is 3 lakhs per year, two joint borrowers can claim 1.5 lakhs each.

Additional Benefit

You can claim additional benefits under Section 80EEA

  • If you are a first time buyer &

  • Value of House property is less than 45 Lakhs

Home loan Benefit

Now, let’s use the income tax calculator to see how much tax you can save with home loan.

Step 1: Open the Income Tax calculator

Step 2: Key in your salary details

Salary Earnings
Salary Deductions

Step 3: Declare your investments

Declarations of income tax home loan

Step 4: Now, Calculate Income Tax

Calculate Income Tax Home Loan

As per the calculation, you have a total tax liability of INR 160000

Suppose you have taken a home loan to purchase a house property for 50 lakhs for a period of 10 years, and you have interest of INR 2.5 lakhs and principle of INR 1.6 lakhs for the current financial year.

Step 5: Declare your Home Loan under Section 24

Section 24 has a limit of 2 lakhs. So, let’s put interest of INR 2.5 lakhs under Section 24.

Section 24(b)

The principal amount can be put under Section 80C.

Section 80C Principle Amount

Step 6: Calculate Income Tax again

Calculate Income Tax with Home Loan

As you see, the total tax liability has come down to INR 72867

Save maximum Income Tax with the
Free Online Income Tax Calculator!

Open Income Tax Calculator

As you see, you have made huge tax savings with your home loan. Remember to get a certificate from your bank on the interest and principal you paid for the financial year.