How Much Tax Can Be Saved by Home Loan

Buying a home doesn’t just give you a place to live—it also opens the door to significant tax savings. If you’re wondering how much tax can be saved by a home loan, the answer depends on the loan components like principal repayment and interest paid, both of which qualify for deductions under the Income Tax Act.

For salaried individuals, first-time buyers, and even self-employed taxpayers, understanding these benefits can reduce your annual tax burden and maximize savings. Let’s break down exactly how much you can save with a home loan and the sections that make it possible.

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Tax Benefits on Home Loan

The tax savings on a home loan are spread across four key sections of the Income Tax Act:

• Section 24(b) – Deduction on the interest portion of the loan.
• Section 80C – Deduction on the principal repayment.
• Section 80EE – Additional deduction for first-time homebuyers.
• Section 80EEA – Special deduction for affordable housing loans.

These deductions differ based on whether the property is self-occupied or let out:

• Self-occupied property: You can claim a maximum of ₹2,00,000 as interest deduction.
• Let-out property: Interest deduction has no upper cap, but the maximum loss that can be adjusted against your income is restricted to ₹2,00,000 per year.

Also see that How to Save Money From Your Salary: A Roadmap for Every Income Level in India

This framework ensures both homeowners and investors benefit, though the nature of savings differs depending on the use of the property.

Let’s explore these sections in detail.

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Section 24(b): Deduction on Interest Paid

The interest you pay on your home loan is often the largest component of your EMI, and Section 24(b) directly reduces its impact on your taxable income.

• For Self-Occupied Property:
  You can claim up to ₹2,00,000 per financial year as a deduction on the interest paid. This benefit is available only if the construction or purchase of the house is completed within 5 years from the end of the financial year in which the loan was taken.
• For Let-Out Property:
  There is no upper limit on the interest deduction itself. However, the maximum overall loss that can be set off against your income in a given year is ₹2,00,000. Any remaining loss can be carried forward for up to 8 years but can only be adjusted against future house property income.

Example Illustration:

Suppose you have taken a loan and paid ₹2,50,000 in interest in a year:

• If the property is self-occupied, you can claim only ₹2,00,000 as deduction.
• If the property is let out, while technically the entire ₹2,50,000 is eligible, the maximum loss you can offset against your other income is ₹2,00,000. The remaining ₹50,000 can be carried forward.

This distinction highlights why homeowners should carefully plan whether to declare a property as self-occupied or let out, depending on their income strategy.

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Section 80C: Deduction on Principal Repayment

While Section 24(b) covers interest payments, Section 80C provides relief on the principal component of your EMI.

• You can claim up to ₹1,50,000 annually under Section 80C.
• Apart from principal repayment, stamp duty and registration charges paid during purchase also qualify, but these can be claimed only once in the year of expense.
• There is a lock-in period of 5 years—if you sell the property before completing 5 years from the end of the financial year in which possession was taken, the deduction claimed earlier gets reversed and becomes taxable in the year of sale.

This deduction often overlaps with other eligible expenses like PF contributions, life insurance premiums, and ELSS investments, so effective planning is needed to maximize the ₹1.5 lakh limit.

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Section 80EE: First-Time Buyer Benefit

To encourage first-time homeownership, the government introduced Section 80EE. Although it applied only to loans sanctioned between April 2016 and March 2017, many taxpayers who bought homes during this window continue to claim it.

• Deduction of up to ₹50,000 annually on home loan interest.
• The property value must not exceed ₹50 lakhs, and the loan amount should not exceed ₹35 lakhs.
• This deduction is over and above the benefits under Section 24(b).

For those who qualified, Section 80EE provided a meaningful top-up to annual tax savings. However, since it is no longer available for new loans, current buyers need to look at Section 80EEA instead.

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Section 80EEA: Affordable Housing Deduction

Introduced as a successor to 80EE, Section 80EEA targeted the affordable housing segment—a key focus area in India’s housing policy.

• Deduction of up to ₹1,50,000 annually on interest paid.
• Applicable to loans sanctioned between April 2019 and March 2022.
• The property value should not exceed ₹45 lakhs.
• Importantly, you cannot claim 80EEA if you are already availing benefits under 80EE.

When combined with Section 24(b), taxpayers could save up to ₹3,50,000 annually on interest payments alone, making this provision particularly attractive for middle-class homebuyers.

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How Much Tax Can Be Saved in Total in Home Loan?

By combining all the available deductions, a borrower can significantly reduce their taxable income. Here’s how it adds up:

• Section 24(b) → Up to ₹2,00,000 (interest on self-occupied property; unlimited for let-out but capped at ₹2,00,000 loss adjustment).
• Section 80C → Up to ₹1,50,000 (principal repayment + stamp duty & registration).
• Section 80EE / 80EEA → Additional deduction of up to ₹50,000 or ₹1,50,000 depending on eligibility.

This means the maximum tax saving can range between ₹3,50,000 to ₹5,00,000 per year, depending on whether you qualify for 80EE or 80EEA.

Case Study Example:

Let’s take the case of a salaried individual with an annual income of ₹10 lakhs and a home loan of ₹40 lakhs.

• Interest paid in a year: ₹2,50,000 → Deduction of ₹2,00,000 under Section 24(b).
• Principal repaid in a year: ₹1,20,000 → Deduction under Section 80C (within ₹1,50,000 limit).
• Eligible for 80EEA (affordable housing): ₹1,50,000 deduction.

Total deduction = ₹2,00,000 + ₹1,20,000 + ₹1,50,000 = ₹4,70,000.
This effectively reduces the taxable income from ₹10,00,000 to ₹5,30,000, resulting in a significantly lower tax liability.

Also, Check out Can We Take a Loan Against PPF

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How to Claim Home Loan Tax Benefits

Claiming these deductions requires following a proper process during the financial year:

1. Collect Home Loan Interest Certificate – Your bank or NBFC provides this document, showing the split between principal and interest paid.
2. For Salaried Individuals – Submit the interest certificate to your employer so that TDS (Tax Deducted at Source) is adjusted accordingly.
3. For Self-Employed – Claim the deduction directly while filing your Income Tax Return (ITR).
4. Report Under Correct Sections in ITR:
   • Section 80C → Principal repayment, stamp duty, registration.
   • Section 24(b) → Interest deduction.
   • Section 80EE/80EEA → If eligible for additional benefits.
5. Keep Supporting Documents – Maintain loan agreement, possession/occupancy certificate, and payment proofs. These may be required if the Income Tax Department asks for verification.

Also Check: Can I Get an Education Loan Without Collateral?

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Conditions & Limitations

While the tax benefits are attractive, there are important rules and restrictions to keep in mind:

• Loan Source – The home loan must be taken from a recognized bank, housing finance company, or NBFC. Loans from friends or relatives do not qualify.
• Construction Timeline – The house construction must be completed within 5 years from the end of the financial year in which the loan was taken. Otherwise, the deduction under Section 24(b) reduces to just ₹30,000.
• Lock-In on 80C – If the property is sold within 5 years, all deductions claimed under Section 80C (principal repayment) will be reversed and added back to taxable income in the year of sale.
• Eligibility Overlaps – You cannot claim both Section 80EE and Section 80EEA together. You must choose the one you qualify for.

These conditions are designed to ensure that tax benefits encourage genuine homeownership and long-term housing stability, rather than short-term speculation.

Also Read: Can a Car Loan Be Used for Tax Exemption? Expert Guide on Tax Benefits & Car Loans

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Conclusion

Home loan tax deductions are more than just a financial perk—they are a structured way to reduce your annual tax liability while building a long-term asset. Depending on the sections you qualify for, you can save anywhere between ₹3.5 lakhs to ₹5 lakhs per year, making a home loan one of the most tax-efficient financial tools available to individuals.

With smart planning—such as timing your loan, choosing the right property type, and ensuring compliance with eligibility rules—you can maximize these benefits. However, since every borrower’s situation is different, it’s wise to review your eligibility carefully and consult a tax expert to ensure you are optimizing savings without missing out on any provisions.

A home loan, when leveraged well, does not just finance your dream home—it also strengthens your overall financial strategy.

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