Under the old tax regime, a home loan can cut your taxable income by up to ₹3.5 lakh a year: up to ₹2 lakh for interest and up to ₹1.5 lakh for principal. The new regime gives no deduction for a house you live in.
What you can claim (old regime)
| Benefit | Limit | Notes |
|---|---|---|
| Interest on a self-occupied home | ₹2 lakh a year | Combined for up to two self-occupied houses |
| Principal repayment | Within ₹1.5 lakh | Shares the Section 123 (old 80C) limit with PPF, EPF, ELSS etc. |
| Stamp duty and registration | Within ₹1.5 lakh | Only in the year you pay them |
| Pre-construction interest | 1/5th each year for 5 years | Starts from the year construction is complete; counts within the ₹2 lakh |
Worked example
Yearly interest ₹3.2 lakh, principal ₹1.1 lakh, no other Section 123 investments, 30% tax slab.
| Item | Deduction |
|---|---|
| Interest (capped) | ₹2,00,000 |
| Principal | ₹1,10,000 |
| Total | ₹3,10,000 |
| Tax saved (30% + 4% cess) | about ₹96,720 |
Whether this beats the new regime depends on your other deductions – check with the income tax calculator and our old vs new regime guide.
Conditions to watch
- Construction must finish within 5 years from the end of the year you took the loan, or the interest limit drops to ₹30,000.
- Selling the house within 5 years of possession reverses the principal deductions already claimed.
- Interest on a loan from a friend or relative also qualifies if you have a certificate of interest paid.
- Keep the lender’s yearly interest certificate – your employer and the return both need it.
Joint home loans
If two people are both co-owners and co-borrowers and both pay the EMI, each can claim up to ₹2 lakh interest and ₹1.5 lakh principal in their own return. Split the claim in proportion to ownership.
Let-out property and the new regime
- Let-out house: all interest is deductible from rent. In the old regime, a resulting loss can be set off against salary up to ₹2 lakh a year and the rest carried forward for 8 years.
- New regime: no deduction for a self-occupied house. For a let-out house, interest can be deducted from rent, but a loss cannot reduce your salary income.
Plan the loan itself with the home loan EMI calculator, and see prepay or invest before making large part-payments.
Frequently asked questions
How much home loan interest can I deduct?
Up to ₹2 lakh a year for a self-occupied house, under the old tax regime.
Can both joint borrowers claim home loan tax benefits?
Yes, if both are co-owners and co-borrowers and both pay the EMI. Each can claim within their own limits.
Is there a home loan tax benefit in the new regime?
Not for a self-occupied house. For a let-out house, interest can be deducted from rent, but a resulting loss cannot reduce salary income.