Home Loan Tax Benefits for FY25: Simplified for You

Introduction

Buying your dream home is a milestone moment, and if you’ve taken a home loan, there’s better news. You can unlock a host of tax benefits that can help you save significantly. As we step into Financial Year 2024-25 (FY25), it’s crucial for homebuyers and homeowners to understand the various tax deductions and benefits available on home loans. This simplified guide breaks down everything you need to know about home loan tax benefits in FY25, so you can make the most of your purchase.

Table of Contents

• Tax Deduction on Home Loan Interest (Section 24b)
• Tax Deduction on Principal Repayment (Section 80C)
• Additional Tax Benefit for First-Time Buyers (Section 80EE)
• Joint Home Loans: Double the Tax Benefits
• Home Loan Tax Benefits: Old vs New Tax Regime
• Eligibility Criteria for Home Loan Tax Benefits
• Important Conditions and Limitations to Know
• Frequently Asked Questions

Tax Deduction on Home Loan Interest (Section 24b)

Section 24b allows home loan borrowers to claim a deduction on the interest paid on their home loan. This benefit is available for both self-occupied and rented properties.

Deduction Limit

• Self-occupied properties: Up to ₹2 lakh per year.
• Rented properties: No upper limit, you can claim the actual interest paid.

Key Conditions

• The loan must be taken for purchase, construction, or renovation of the property.
• The property’s construction must be completed within 5 years from the end of the financial year in which the loan was taken.

Benefit Under New vs. Old Tax Regime

• Under the old tax regime, this deduction is available for both self-occupied and rented properties.
• Under the new tax regime, this benefit is only available for rented properties.

Tax Deduction on Principal Repayment (Section 80C)

Section 80C allows a deduction on the principal repayment of your home loan, helping you reduce your taxable income.

Deduction Limit

• Up to ₹1.5 lakh per year.
• This limit includes other eligible investments and payments under 80C (like PPF, EPF, life insurance, etc.).

Key Conditions

• The property must not be sold within 5 years from the date of possession.
• Payments for stamp duty and registration charges can also be claimed under 80C, subject to the same ₹1.5 lakh limit.

Additional Tax Benefit for First-Time Buyers (Section 80EE)

To encourage first-time homebuyers, the government introduced Section 80EE, offering an extra tax deduction on home loan interest.

Deduction Limit

• Up to ₹50,000 per year, over and above the deduction under Section 24b.

Eligibility Criteria

• You must be a first-time homebuyer.
• The loan amount should not exceed ₹35 lakh.
• The value of the property should not exceed ₹50 lakh.
• The loan must be sanctioned by a bank or financial institution.

Joint Home Loans: Double the Tax Benefits

If you’ve taken a joint home loan with a co-borrower (like your spouse, parent, or sibling), you can double the tax benefits, provided both borrowers are co-owners of the property.

How It Works

• Both co-owners can individually claim deductions for both principal repayment (Section 80C) and interest paid (Section 24b).
• This means the maximum deductions (₹1.5 lakh for principal and ₹2 lakh for interest) can be claimed by each co-borrower, effectively doubling the total benefit.

Key Conditions

• Both individuals must be co-owners and co-borrowers. Just being a co-borrower without ownership won’t qualify for tax benefits.
• The property ownership share can be equal or unequal, but deductions are claimed in proportion to each borrower’s share in the loan repayment.

Example

If a married couple takes a joint loan, both partners can claim:

Home Loan Tax Benefits: Old vs New Tax Regime

The home loan tax benefits outlined above are only available under the old tax regime. If you opt for the new tax regime introduced in FY21 (which has lower tax rates but fewer deductions), you will lose out on most home loan benefits.

Eligibility Criteria for Home Loan Tax Benefits

To claim tax benefits on home loans, you must meet the following eligibility criteria:

• You must be a co-borrower and a co-owner.
  • If you are a borrower but not an owner, you cannot claim any deductions.
• The loan must be taken from a recognized lender.
  • Loans from banks, housing finance companies, and approved NBFCs qualify.
• Purpose of the loan matters.
  • Loans must be taken for purchase, construction, or renovation.
  • Loans for plots (without construction) do not qualify for interest deductions under Section 24b.
• Property ownership type matters.
  • Tax benefits vary depending on whether the property is self-occupied or rented.
• First-time buyer criteria for Section 80EE.
  • To claim this section, the buyer must not own any other residential property on the date of loan sanction.

Important Conditions and Limitations to Know

To avoid rejection of your tax claims, keep these important conditions in mind:

Completion Certificate is Mandatory

• For claiming interest deduction (Section 24b), the property’s construction must be completed within 5 years from the end of the financial year in which the loan was taken.

5-Year Holding Rule for 80C

• If you sell the property within 5 years of possession, the deductions claimed under Section 80C (principal repayment) will be reversed and added back to your taxable income in the year of sale.

Interest Deduction Before Possession

• Interest paid during the construction phase can be claimed in 5 equal installments after possession under Section 24b.

Home Loan Prepayment Benefits

• Prepayment of a home loan (paying off the loan early) qualifies for the same tax benefits as regular EMIs, provided the prepayment amount covers either interest or principal.

New vs Old Regime Limitation

• Taxpayers opting for the new tax regime will have to forego most of these deductions, making it crucial to evaluate which regime saves more.

Conclusion

Knowing the home loan tax benefits for FY25 can help you plan your finances smartly. Whether you’re a first-time buyer, opting for affordable housing, or investing in rental property. These deductions can reduce your overall tax liability and make home ownership more affordable.

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Frequently Asked Questions