Which tax deductions does a home loan allow?
A home loan allows two deductions for an individual. Principal repaid in the year is deducted under section 80C, up to ₹1.5 lakh inside that section’s overall cap. Interest is deducted under section 24(b), up to ₹2 lakh for a self-occupied house whose construction finished within five years. The claim goes in the income-tax return.
Which two deductions apply?
| Payment | Section | Cap |
|---|---|---|
| Principal, and stamp duty in the year it is paid | 80C | ₹1.5 lakh, shared with the rest of section 80C |
| Interest on a self-occupied house | 24(b) | ₹2 lakh, if construction finished within five years |
| Interest on a let-out house | 24(b) | The interest itself has no cap. Loss set off against other income stops at ₹2 lakh |
The borrower needs an interest certificate from the lender that splits principal and interest. The house is in the borrower’s name. Deduction of interest begins when construction is complete, or at once if the house was bought ready.
How much interest is allowed?
For a self-occupied house, section 24(b) allows interest up to ₹2 lakh when the loan is for purchase or construction and the house is completed within five years from the end of the financial year in which the loan was taken. If completion takes longer, that cap is ₹30,000. Interest on a loan taken only for repair of a self-occupied house is also capped at ₹30,000.
Two houses may be treated as self-occupied. The ₹2 lakh cap is the total for those houses, not ₹2 lakh for each of them. On a let-out house the interest is fully deductible against the rent. Loss under the head “Income from house property” that is set off against other income in the same year is limited to ₹2 lakh. The rest is carried forward for eight years and set off only against house-property income.
Interest paid before completion is pre-construction interest. It is deducted in five equal instalments starting in the year of completion, and for a self-occupied house those instalments sit inside the ₹2 lakh cap.
Two lakh, within five years. Self-occupied interest stays at ₹2 lakh only if the house is finished within five years of the year of the loan.
Which older loans have an extra deduction?
- Section 80EE: an extra ₹50,000 of interest, for a loan sanctioned from 1 April 2016 to 31 March 2017, of not more than ₹35 lakh, on a house worth not more than ₹50 lakh, where the buyer owned no other house on the sanction date.
- Section 80EEA: an extra ₹1.5 lakh of interest, for a loan sanctioned from 1 April 2019 to 31 March 2022, on a house whose stamp-duty value is not more than ₹45 lakh, where the buyer owned no residential house on the sanction date.
A loan sanctioned after 31 March 2022 does not enter section 80EEA. It uses section 24(b) and section 80C.
How does a joint loan work?
Each co-owner who is also a co-borrower, and who pays a share of the EMI, claims that share. Each person has their own section 24(b) cap of ₹2 lakh and their own section 80C cap of ₹1.5 lakh. A person who is only a co-borrower, and not an owner, does not claim the deduction. A person who is only an owner, and does not pay the loan, does not claim it either.
If the house is transferred within five years from the end of the year in which it was acquired, the principal already claimed under section 80C is taxed in the year of transfer.
Frequently asked questions
Four questions cover the ₹2 lakh cap, a long construction, section 80EEA, and an early sale.
Is the ₹2 lakh cap per house?
No. For self-occupied houses the ₹2 lakh cap is the total interest deduction under section 24(b), even when two houses are treated as self-occupied. Joint owners who are each co-borrowers each have their own cap.
What if construction takes more than five years?
If the house is not completed within five years from the end of the financial year in which the loan was taken, the self-occupied interest deduction is capped at ₹30,000.
Can a loan sanctioned in 2025 use section 80EEA?
No. Section 80EEA applies to a loan sanctioned from 1 April 2019 to 31 March 2022. A loan sanctioned after that date uses section 24(b) and section 80C.
What happens if the house is sold within five years?
Principal claimed under section 80C in earlier years is taxed in the year of sale, if the house is transferred before five years from the end of the year in which it was acquired.
Sources
Principal is section 80C of the Income-tax Act. Interest is section 24(b). The return that claims them is on the income-tax page.