Home Loan Tax Benefit: How to Get Income Tax Benefits on Your Home Loan

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Buying a house involves a long-term financial commitment, but eligible taxpayers can lower its overall cost through tax deductions. A home loan tax benefit may be available on both parts of the EMI: the principal repayment and the interest payment.

However, a home loan does not automatically provide a tax deduction. You must satisfy the applicable conditions, choose the appropriate tax regime and maintain the necessary documents.

Tax rules also change periodically. The Income-tax Act, 2025, as amended by the Finance Act, 2026, came into force on 1 April 2026. Therefore, borrowers should check the rules applicable to the relevant tax year before filing their returns.

Understand the Two Parts of Your Home Loan EMI

Every home loan EMI usually contains:

Principal: The amount that reduces the outstanding loan balance.
Interest: The cost charged on the borrowed amount.

The income tax benefit on home loan repayments is calculated separately for these two components. Your annual loan statement generally provides a clear breakup of the principal and interest paid during the year.

Deduction on Home Loan Interest

Under the earlier Income-tax Act, the commonly used provision for claiming interest was Sec. 24 B. It allowed eligible borrowers to claim interest paid on money borrowed for purchasing, constructing, repairing, renewing or reconstructing a property.

For a self-occupied residential property, interest on funds borrowed for purchase or construction could be claimed up to ₹2 lakh, subject to prescribed conditions. The construction or acquisition generally had to be completed within five years from the end of the financial year in which the loan was taken. Interest for repair, renewal or reconstruction of a self-occupied property was subject to a lower limit of ₹30,000. (ETDs)

Borrowers may also claim pre-construction interest. This is the interest paid before the financial year in which construction is completed, or the property is acquired. Eligible pre-construction interest is generally claimed in five equal instalments, beginning from the year of completion or acquisition. An interest certificate from the lender is required. (ETDs)

This housing loan interest exemption is technically a deduction from income under the head “Income from House Property,” rather than a direct exemption from tax.

Deduction on Principal Repayment

Under the old tax regime, the principal portion of a housing loan could generally qualify within the overall deduction limit available under Section 80C.

The eligible amount could include:

Principal repaid during the financial year
Certain stamp duty expenses
Eligible property registration charges

However, these amounts form part of the overall Section 80C limit and do not create a separate additional deduction exclusively for the housing loan.

A principal repayment deduction may also be reversed if the property is sold within the specified holding period. Therefore, borrowers should not treat every principal payment as a permanent home loan exemption without checking the conditions.

Old Tax Regime vs New Tax Regime

The tax regime you select can significantly affect your housing loan tax benefit.

Under the new tax regime, interest on capital borrowed for a property occupied by self is not permitted as a deduction. A taxpayer who wants to claim this deduction generally needs to select the old tax regime while filing the applicable return. (Income Tax Department)

Similarly, most Chapter VI-A deductions, including the usual Section 80C benefit for principal repayment, are not available under the new tax regime.

Do not select the old regime only because you have a home loan. Compare your total deductions, taxable income and tax payable under both regimes. The lower tax rates under the new regime may still produce a better outcome for some borrowers.

Tax Benefit on a Let-Out Property

The calculation is different when the property is rented out. Rental income is included under “Income from House Property,” after which eligible deductions are applied.

Interest paid on the home loan may be considered while calculating income from the let-out property, subject to the applicable set-off and carry-forward rules. If a property is self-occupied for part of the year and rented for another part, it is generally treated as let-out for tax computation, although actual rent is considered only for the rented period.

Can Joint Borrowers Claim Separate Benefits?

Joint borrowers may individually claim a home loan tax benefit when they are:

Co-owners of the property
Co-borrowers under the loan agreement
Actually contributing towards repayment

The deduction available to each borrower depends on their ownership share and repayment contribution. Simply being named as a co-borrower without owning the property or paying the EMI may not be enough.

Documents Required to Claim the Tax Benefit on Home Loan

Keep the following records ready:

Loan sanction letter
Annual interest certificate
Principal repayment statement
Property ownership documents
Possession or completion certificate
Registration and stamp duty receipts
Proof of EMI payments
Co-ownership and repayment details, where applicable

Current ITR reporting may require details such as the lender’s name, loan account number, sanction date, original loan amount, outstanding balance and interest claimed. (Income Tax Department)

Make Your Home Loan Tax Benefits Work for You

To claim the maximum eligible benefit, understand the interest and principal components of your EMI, compare both tax regimes and preserve every supporting document. Since the applicable limits and section numbers may change under revised tax legislation, verify the current provisions or consult a qualified tax professional before filing your return.