Home Loan Tax Deduction Benefits (2021-22: All You Need to Know)

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Almost everyone in India wants to have a house of their own some day. But strong desires alone are not sufficient for this. One needs to have the money to back this decision. And given the sky rocketing property prices in India, most people need to take home loans to purchase their first house.

Fortunately, the government still incentivizes people to purchase their house by offering tax breaks. And there is no denying that these tax benefits on home loan make it all the more attractive to buy property using home loans. At least to an extent.

In this post, we see in details what these home loan tax benefits are and what home loan tax deductions can prospective home buyers consider in 2021-22.

When you take a home loan, you pay your monthly EMIs. Now like loans themselves, these EMIs too have 2 components – principal and interest. And different tax benefits are available for both, i.e. let’s see how much you can claim as deduction against the principal and interest paid on home loans.

Tax Deduction on Home Loan Principal Repayment under Section 80C (2021-22)

The principal portion of your EMIs repaid during a year are allowed to be taken as deduction under the Section 80C of the Income tax act. Under the Section 80C, you can claim a deduction of Rs 1.5 lakh against the principal repaid during the year.

This is the upper limit of the deduction you can claim. That is, let’s say you have repaid Rs 2.25 lakh as principal. So given the limits, you can still claim only up to Rs 1.5 lakh as deductible.

An important point here is that if you are claiming this deduction, then the house on which you took the loan should not be sold before at least 5 years. If you do so, then the tax break will be reversed and the deduction claimed earlier will be added back to your income in the year of sale and taxed accordingly.

There is one more point that needs to be noted about this benefit housed under Section 80C.

The Section 80C also allows deductions on investments in EPF, PPF, ELSS (Equity Linked Savings Scheme) and expenses like insurance premiums, children’s school fee, etc. So all these investments and expenses compete with home loan principal repayment for the Section 80C benefits. There is a high change that the sum of EPF + PPF + ELSS + insurance premiums + Home Loan Principal repaid will be much higher than the limit of Rs 1.5 lakh. If that’s the case, the cap of Rs 1.5 lac in Section 80C limits the benefit to just Rs 1.5 lac irrespective of what you claim from within EPF, PPF, ELSS, premiums or home loan principal repayments. So if you have a big home loan and are repaying more than Rs 1.5 lakh of home loan principal, then your home loan principal repayment tax benefit will be still limited to only Rs 1.5 lakh.

Tax Deduction on Home Loan Interest Payment under Section 24B (2021-22)

The interest portion of your EMIs paid during a year are allowed to be taken as deduction under the Section 24B of the Income tax act.

Currently, you can claim a deduction of Rs 2 lakh against the interest paid during the year for Self-Occupied property while for let out property, there is no upper limit for claiming interest as deduction under Section 24B.

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So for self-occupied property, due to the above-mentioned capping of benefit, even if you are paying more than Rs 2 lac interest in a given financial year, the excess interest above Rs 2 lac will not fetch you any additional tax benefits.

Please note that unlike this deduction is available only after the construction of the house is complete. That is, you can avail this tax benefit only after you get possession of the house. But there is a way to get some benefits later on. I will talk about it in a bit.

Another rule is that if the construction of your under-construction house is not completed within 5 years from the year in which the home loan was taken, then the tax benefit for interest payment under Section 24 shall come down to Rs 30,000 from Rs 2 lakh.

Tax Deduction on Interest Paid during Pre-Construction (2021-22)

I said earlier that the benefit on home loan interest is available only after the construction is complete or you get possession of the house. But does this mean that you would not get ‘any’ tax benefits on the interest paid during the period between taking the loan completion of construction?

The answer is No. You will get some benefits. Here’s how.

As per the current rules, the total aggregate interest paid on home loan during pre-construction phase, i.e. pre-construction interest can be claimed as deduction in 5 (Five) equal instalments starting from the year in which the property is acquired or construction is completed. This is additional benefit and is over and above the deduction you are otherwise eligible to claim from your house property income. However, the maximum still remains capped at Rs 2 lakh.

So this is something to keep in mind if you are planning to purchase an under-construction property.

And just one more thing that you should be cognizant of when planning to buy an under-construction property. You will continue to pay your EMIs as well as rent for the place you are staying in. So it will be a sort of double burden for you if you do not have a lot of surplus income to spare.

Additional Tax Deduction under Section 80EE (2021-22)

There is an additional deduction of up to Rs 50,000 available under the Section 80EE on the loan amounts sanctioned between 1st April 2016 and 31 March, 2017.

This is though applicable only for house purchases where the cost of the house is up to Rs 50 lakh and the loan availed is only up to Rs 35 lakh. And on the date of sanction of loan, individual does not own any other house.

Additional Tax Deduction under Section 80EEA (2021-22)

There is an additional deduction of up to Rs 1.5 lakh available under the Section 80EEA on the home loan sanctioned between 1st April 2019 and 31 March 2020. It is applicable only for house purchases where the cost of the house is up to Rs 45 lakh. And on the date of sanction of loan individual should not have owned any other house, i.e. this additional deduction is only for the first-time home buyers.

Do note that this is an additional deduction. That is, this deduction is available over and above the Rs 2 lakh deduction available under the existing Section 24 (b). So let’s say you take a home loan where you end up paying interest of Rs 3.5 lakh for the year. So now you can claim Rs 2 lakh under Section 24 (B) and Rs 1.5 lakh under Section 80EEA as tax deduction.

But mind you, this is only for houses (up to Rs 45 lakh, i.e. in affordable housing category) bought by first-time buyers via home loans sanctioned between 1st April 2019 and 31 March 2020.

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Note – Budget 2021 has extended by one more year to 31st March 2022. The deduction benefit of Rs 1.5 lakh will now be available for the purchase of affordable houses for one more year.

But what about stamp duty & registration charges?

Can Stamp Duty & Registration Charges be claimed as deduction?

Yes. Deductions for the stamp duty and the registration charges can also be claimed under the Section 80C. But this can be done within the overall limit of Rs 1.5 lakh of Section 80C. Also, this can be claimed only in the year in which these expenses are actually incurred.

Tax Deduction for Joint Home Loan (2021-22)

How does the tax deduction happen in case of joint loans? Like can both husband and wife claim income tax deduction for home loan repayment?

The answer is yes. But with a condition. The tax benefits for interest payment and principal repayment of home loan can be claimed by both only if they are joint owners as well as a co-borrowers servicing the home loan.

So if the home loan is taken jointly, then each borrower can claim a deduction for home loan interest under Section 24B up to Rs 2 lakh each and principal repayment under Section 80C up to Rs 1.5 lakh each.

As you see, if the loan is taken jointly with family members, then it can help all of them claim a larger tax benefit under both the sections.

And what shall be the ratio in which the benefits can be claimed between the two?

The answer will depend on the ratio in which both are servicing the home loan. And that may or may not be in the same ratio for both. So it’s not necessary that the ratio will be same as the share of ownership of the property. Rather, it’s about the ratio of the loan EMIs being serviced.

Additional Tax Benefit for Houses below Rs 2 crore (2021-22)

A new income tax relief has been announced for homebuyers by the government in 2020-21. The benefit is available to buyers if they purchase a residential real estate of value of up to Rs 2 crore (i.e. below Rs 2 Cr). Clearly, the move has been announced to boost the demand for residential properties. What is this new tax relief for purchases up to Rs 2 crore? As per the announcement, the acceptable differential between the circle rate and the agreement value in real estate sale/purchase, for the purpose of income tax has now been hiked to 20% from earlier 10%. Do note that this limited-period benefit under the Section 42CA, is given only for residential properties. And this relief is available only till 30th June 2021. After that, the threshold will again revert back to 10% unless the government decides otherwise. Also, this is the second revision of the limit. The first was done in February 2020 when the differential was increased from 5% to 10%.

To know more about this new tax benefit, do read this detailed post at a new tax benefit for buyers of residential house up to Rs 2 crore.

Tax Deductions for Two (or more than one) Home Loans (2021-22)

Yes you can avail tax benefits on two home loans if you have them. But there are certain limits to how much you can avail.

You can avail Section 80C benefits of principal repayment for multiple loans. However, the total benefit for principal repayment for all loans will still limited to Rs 1.5 lakh – as is the limit of Section 80C itself.

Things are slightly different for interest payment under Section 24B. If you have two loans – one on self-occupied house and other a let out property, then the benefit for the self-occupied house will be capped at Rs 2 lakh while the other will be considered as let our property and hence, has no upper limit on interest payment available as deduction under Section 24B.

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That’s all about the home loan tax benefits available as of now.

But at times, people overestimate how much tax benefits are available for their home loans. I wrote a piece on this few years back here. But just as a refresher, I am sharing the example again here.

The home loans are structured like this that during initial years, a major part of your loan EMI goes towards interest payment and therefore, home loan gets paid off slowly during initial years. So it’s possible that the interest you pay in the initial years will be much higher than just the Rs 2 lakh limit for tax benefit.

Let’s take 2 home loan examples to see this.

Further Reading: How much home loan should you take?

There are 2 home loans – the first of Rs 25 lakh and the second of Rs 50 lakh. The home loan tenure for both is 20 years while the home loan interest rate on both is 9.5%.

The EMIs are as follows: Rs 23,303 (for Rs 25 lakh loan) and Rs 46,607 (for Rs 50 lakh loan).

To know more about various EMI amounts for various loan amounts, check the following articles: Rs 25 lakh home loan EMI, Rs 30 lakh home loan EMI, Rs 40 lakh home loan EMI, Rs 50 lakh home loan EMI, Rs 1 crore home loan EMI or you can even use this free home loan EMI calculator. Also check

Now have a look at the table below:

Home Loan Tax benefit comparison Section 80 Section 24

Assuming both loans are for self-occupied houses, the upper limit for the Section 24B tax benefit for interest payment is Rs 2 lakh only.

Now as you can see in the table above, the interest paid on the loans during initial years is higher. That’s how home loans work.

For the Rs 25 lac loan, the interest part that misses out on tax benefit is very small (Rs 35,616 in the first year and goes on reducing). But for the Rs 50 lac loan, you initially pay Rs 4.71 lac as interest in the first year. This is much more than the Rs 2 lac per year limit. So you only get the tax benefit on Rs 2 lac of interest (under Section 24). The remaining Rs 2.71 lac doesn’t get any tax benefit.

So this shows that at times, people don’t get the high tax benefit for loan repayment that they might initially assume they would get.

This is all the more reason why one needs to look at the tax angle when planning to prepay home loans. And if that wasn’t enough, there is also the dilemma of whether to invest vs prepay home loan – to benefit from higher returns elsewhere as compared to low post-tax home loan interest rates that are prevalent in India. But I suggest that before you decide to prepay your home loan, you run your own numbers or get in touch with an investment advisor to help you out.

Related Reading: Home Loan Rates Falling. Should you buy a House now?

That’s it.

Buying a house is one of the biggest financial decision for most Indians financial lives. So make sure that when you decide to buy a house on loan, you make sure you understand the actual tax benefits you will get on your loan. I hope you found this detailed post on tax deductions on home loans in India (2021-22) useful.



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Dev Ashish

Dev Ashish

A SEBI Registered Advisor and founder of Stable Investor, Dev Ashish is helping people achieve their Financial Goals & Invest profitably.
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