How to Save Income Tax on Home Loan: Tax Benefits Explained
Buying a home is one of the biggest financial decisions you'll make, and it comes with home loan tax benefits that can meaningfully reduce what you owe the government each year. But these benefits aren't automatic, and they don't apply to everyone in the same way. Here's a clear breakdown of how income tax benefit on home loans works in FY 2025-26.
The Two Main Components: Principal and Interest
Every EMI you pay is split into two parts, principal and interest, and each is treated differently for home loan tax exemption purposes.
Home loan interest tax benefit (Section 24 home loan interest deduction): Under Section 24(b) of the Income Tax Act, you can claim a deduction of up to ₹2 lakh per financial year on the interest paid, for a self-occupied property. This is one of the most used provisions for tax saving on home loan, but it comes with a condition, construction must be completed within 5 years of taking the loan, or the deduction drops to just ₹30,000.
Home loan principal tax benefit (Section 80C home loan): The principal portion you repay qualifies for a deduction of up to ₹1.5 lakh under Section 80C, the same overall limit that also covers PPF, ELSS, and life insurance premiums, so this isn't an additional pool of savings on top of your other 80C investments.
Together, these two provisions can bring your total home loan tax deduction up to ₹3.5 lakh in a year. If you've taken a joint home loan with your spouse, and both of you are co-owners and co-borrowers, you can each claim these deductions individually, effectively doubling the benefit to up to ₹7 lakh combined.
The Old vs New Tax Regime - This Changes Everything
Here's the part most people miss: these deductions are only available under the old tax regime.
The new tax regime, now the default as of 2026, offers lower slab rates but does not allow Section 24(b) or Section 80C deductions for a self-occupied property. If your property is rented out, you can still deduct interest against your rental income under the new regime, but you can't offset that loss against your salary.
So before assuming you'll get these benefits, it's worth running the numbers both ways. Generally, if your total deductions (including home loan interest and principal) cross roughly ₹4 lakh, the old regime often works out better. If they don't, the new regime's lower rates may still win out.
What About Section 80EEA?
You may have heard of an additional ₹1.5 lakh deduction under Section 80EEA for affordable housing. It's worth knowing this benefit has lapsed, it only applied to home loans sanctioned between 1 April 2019 and 31 March 2022, with a stamp duty value up to ₹45 lakh. If your loan falls outside that window, you cannot claim it, no matter how affordable your property is.
A Few Things to Get Right
Don't claim the whole EMI. Only the interest portion goes under Section 24(b), and only the principal under Section 80C. Your lender's annual interest certificate splits this for you clearly.
Consider a joint loan if your spouse also earns, it can significantly increase your combined deduction.
Watch the 5-year holding rule if you sell the property within 5 years, previously claimed Section 80C deductions on the principal can be reversed and added back to your taxable income.
Factor in stamp duty and registration charges these are also eligible under Section 80C in the year of purchase, and are an easy way to use up the limit.
Home loan tax benefits are genuinely valuable, but they reward careful planning, knowing which regime to pick, keeping your interest and principal claims separate, and understanding which deductions still apply to a loan taken today. A little homework here can translate into real, recurring savings every year of your loan tenure.
Planning to take a home loan or explore your options? Talk to Rakshitha Finserve to understand what fits your financial profile, before you apply.