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The Government is encouraging Individuals to invest in House Property and providing greater benefits to them by giving tax relaxation. If you are planning to buy a new house then it would be wise to go for housing loan even as it helps you to save tax on income. Payment of housing loan gives you an opportunity to save taxes by claiming benefit of both Interest as well as Principal repayment of the Housing Loan when you go for e-filing of tax returns. The Income Tax Act provides deduction under section 80C against Principal Repayment and exemption under Section 24(b) on Interest payment of Housing Loan.

There are 2 possible situations which would determine how you can claim the tax benefits. A Housing loan can be obtained against a property whose possession is received or is yet to be received as it is being constructed.

Housing Loan taken and possession received in the same year.

Housing Loan can be taken for purchasing or constructing a new house property. When a loan is taken in the same year in which the house property is purchased or constructed, one can enjoy the tax benefits on payment of both principal and interest component of the housing loan.

Principal: The repayment of principal component of housing loan is entitled for exemption under 80C up to Rs. 150,000 along with all other permissible instruments like, life insurance premium, PPF, ELSS, NSC etc. 80C deduction for principal repayment of housing loan is allowed as soon as you start repaying the loan. This tax benefit can be claimed irrespective of the fact that the property is being self occupied or let out.

For claiming such deduction there are certain requirements to be fulfilled i.e. principal repayment will be considered for deduction only if the loan is not taken for improvement, extension, renovation or alteration of an existing house. Further, it cannot be claimed if an individual has taken home loan from relatives or friends or from any other source, which is not mentioned as Specified Institution/Department.

Interest: Section 24(b) of Income Tax Act entitles you to claim exemption on interest payment of housing loan against the property purchased or constructed. The benefit can only be taken from the year in which the possession has been received. The actual interest payable is allowed as deduction subject to maximum of Rs. 200,000 for a Self-Occupied property. In the case of Let-Out property, there is no maximum limit and the entire amount of interest payment can be taken for tax benefit.

If the fresh loan has been raised to repay the original loan and the new loan has been used only for the purpose of repaying the original loan then the interest paid on such fresh loan is also allowed as deduction. Penal interest on housing loan shall not be allowed as deduction. If the purchase price of the property is paid in installments with interest, the interest portion of the installment is an allowable deduction under Section 24.

Housing Loan taken but possession received next year or later.

Often it is seen that housing loan is taken but the possession of the property is received in the next or later financial year. It may be because the property is not completed or constructed. Tax benefits of housing loan can still be enjoyed but there are certain restrictions to it.

Principal: Till the house is not constructed and the possession is not taken over, deduction on house loan principal repayment is not allowable. You need to have possession and certificate of ownership to claim tax under section 80C. In simple words it is said that you should be the owner of the house property. After the possession is received, the deduction can be claimed normally up to a maximum of Rs. 1.5 Lakhs under section 80C.

Interest: The interest deduction u/s 24(b) can be claimed after the possession of the house property is taken over. However, the total amount of interest paid on home loan prior to possession of house property as can be claimed as pre-construction interest in 5 equal installments for next 5 years from the financial year in which possession is received. The pre-construction interest is allowed upto a limit of Rs 2 Lakhs including the current year interest payment on home loan. This can be claimed only after the house is ready and possession is taken over. If the house has been let out, the taxpayer can claim the entire interest component as deduction from the rental income without any restriction.

Kindly Note in respect of set-off and carry forward of losses there are some recent changes :

With effect from financial year 2017-18 Govt has restricted the limit of set off of loss from house property against other heads of Income to Rs. 2 Lakh. Till financial year 2016-17 there was no restriction and assessee was allowed to set-off any loss from house property against other heads of Income. Please note the restriction is placed on set-off of losses and not on the amount of home loan interest that can be claimed as a deduction under Section 24 for a rented house property, the losses which could arise on account of such interest repayment can be set off only to the extent of Rs 2 lakhs. Such loss in excess of Rs. 2 Lakh can be carried forward for upto 8 Assessment Years succeeding the year of loss and can be set off against Income under the head House Property.

(Republished With Amendments)

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  1. Mohan kumar says:

    Can anyone tell that to claim home loan benefit in income tax return is there any list of home loan providers which are authorised for example all banks…

  2. Keshav Kumar Gupta says:


    I bought a house in 2012 which is completed this year. My scenario is

    1. I have got possession of property on 18th march 2016

    2. I was staying on rent for entire year.

    3. As per rule, we can’t claim HRA and home loan interest benefit if house is in the same city as you working in.

    4. But my case is where i paid rent for full year as well as i got possession in this current financial year.

    Question I have are :

    1. Is it possible to claim both the benefits during Income tax return?

    2. If yes, Will it be considered Self Occupied property or To Let property for the purpose of exemption limit?

    3. How will I add previous year’s interest (divided by 5) in this year? If I don’t claim previous year’s interest now, can i do it next year?

    4. Any precaution I should take, as it is little complicated case?

    Thanks in advance.


  3. Bharat City A4 Tower says:

    Hello , I got possession after 3 yrs from the Loan sanction date.

    9.02.2012 – Sanction date
    2.05.2015 – Possession date.

    For the F.Y. 2015-16 – I can only claim 30,000 , as my company tool doesn’t allow me to claim the total interest paid benefit for 15-16.

    Now what about :

    1. F.Y. 16-17 onwards – would I’b eligible to claim the maximum interest currently paying , or it is now restricted to 30,000 per year for entire Loan tenure.

  4. Mohamed says:

    please give a clear details about housing loan tax benefit details. because i urgently need to take house property loan for construction of our home. but house property documents are only in my father name. If i took house property loan can i claim house property interest and principal??????? please give your valuables suggestion for my clearance..

  5. S. P. Gupta says:

    I have taken loan against property which is fully repaid. Again I want to take loan on that property as renovation loan. Can I claim the deduction u/s 80C and exemption u/s 24(b) of Income Tax Act.

    Further If I have 2nd house the value of which is less than 30L and not given on rent.

    Pls suggest.

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May 2024