Is Taking Home Loan A Smart Decision For Saving Taxes?

Given the high Property prices in the country, it is almost impossible to buy a house without availing housing loan. Home Loan Tax Benefit – A housing loan usually comprise of 70-80% of the Property’s value. So, it is probably the highest amount a person would avail in the form of a loan. Now the question that comes into picture is “Is taking a housing Loan a smart decision for saving taxes?”

Home Loan Tax Benefit - Taxreturnwala


Will you deny a home loan, if the EMIs that you pay in the form Principal amount and interest both qualify for tax deduction under Income Tax Act, 1961? Let’s take a closer look at your home loan tax benefits.


 Individuals and HUFs are eligible to avail home loan tax benefit for purchase or construction of Property under Section 80C of Income Tax Act, 1961. Deduction of Repayment of principal amount from the taxable income can be claimed up to maximum of Rs. 1.5 lakhs (Rs. 1 lakhs up to A.Y. 2014-15). This tax deduction also includes amount invested in PPF Account, Tax Saving Fixed Deposits, National Saving Certificate etc.

Points to be taken care of:

  • When loan is taken for Purchase of Property– No home loan tax benefit will be allowed if the house property is transferred before expiry of 5 years from the end of financial year of possession of the property. In such cases, amount claimed as deduction will be reversed and become taxable.
  • When loan is taken for Construction of property: Home Loan Tax benefit is allowed only when the construction is complete and completion certificate is awarded. No deduction is allowed for the repayment of principal amount for those years during which the property was under construction.

Home Loan Tax benefit on payment of Interest on home loan is allowed as deduction under Section 24 of the Income Tax Act, 1961.

In case the property is self-occupied– Tax deduction is subject to maximum limit of Rs. 2 Lakhs (Increased from 1.5 to 2 lakh in Budget 2014)

In case the property is not self-occupiedTax deduction of whole interest amount can be availed.

Points to be taken care of:

  • If the property is not self-occupied by the owner because of his employment, business or profession being carried out at any other place, then the amount of tax deduction shall be Rs. 2 lakhs only.
  • The tax deduction can be claimed starting the year in which construction of the house is completed. However, pre-construction interest can also be claimed in 5 equal installments starting the year in which construction is completed.

The amount paid as Stamp Duty & Registration Fee is also allowed as tax deduction even if no home loan has been taken.

This is an additional Home loan tax benefit of Rs. 50,000 for interest on home loan available to the first time buyers (only individuals). To avail this benefit, Value of the house should not be more than 50 lakh, loan should not be more than 35 lakh, loan should be sanctioned between 01.04.2016 to 31.03.2017. 

Now we hope You make a Smart Choice !