A home loan doesn't just help you buy a home; it can meaningfully lower your income tax bill as well. Understanding home loan tax rate benefits and knowing exactly how to calculate them can help you plan your finances better and decide which tax regime works in your favor. And in this blog we are going to cover all the deductions available on home loans and how each one is calculated.
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What are home loan tax benefits?
Home loan tax benefits are the deductions the income tax act allows on the interest and principal you repay on the housing loan. These deductions reduce your taxable income, which in turn lowers the tax you owe, so broadly there are three components.
Interest paid on the home loan: Deductible under section 24(b)
Principal repaid on the home loan: Deductible under section 80(c)
An additional interest deduction on the eligible first-time affordable-housing buyer: under section 80 (EEA)
Each of these has its own limit, its own conditions, and, importantly, is available if you file under the old tax regime. Let's look at each one and how to calculate the exact tax savings on a home loan.
Section 24(b): Home loan tax rate deduction:
Section 24(b) allows you to deduct the interest paid on your home loan from your taxable income under the head “income from house property." This is usually the single largest home loan tax benefit available.
Self-occupied property: Interest deduction is limited to Rs 200,000 per financial year.
Let-out (rented) property: the entire interest amount is deductible, with no upper cap, though the loss you can set off against your other income (like salary) in a single year is capped at Rs. 200,000; any exces can be carried forward
If you are paying rent in a different city for work and your home loan property lies vacant, you can still claim a Rs 200,000 deduction. The property is treated as deemed let-out or self-occupied depending on your situation
This deduction under section 24(b) is only available if you opt for the old tax regime.
Section 80(c): Home loan principal tax deduction
Section 80(C) lets you claim the principal portion of your EMI as a deduction, along with stamp duty and registration charges.
Maximum deduction: Rs. 150,000 per financial year
The limit is mixed with other 80C investments, PPF, ELSS (equity-linked saving scheme), life insurance premiums, and so on, so the Rs. 150,000 ceiling covers all of them together.
Available only under the old tax regime, and only if property is not sold within five years of possession
Deduction under 80C is not available for a loan taken purely for repair, renovation, or reconstruction, only for purchase or construction.
Section 80(EEA): Additional home loan tax benefit for affordable housing
If the loan was approved between April 1, 2019, and March 31, 2022, and the stamp duty value of the property was less than ₹45 lakh, Section 80EEA enabled first-time homebuyers with an additional interest deduction of up to ₹1,50,000 annually, above the Section 24(b) cap. You can keep taking this deduction every year until the loan is closed if you took out a loan during that period and haven't paid it back in full. New loans approved after March 31, 2022, are ineligible. Section 80EE, a comparable but now-closed provision, provided up to ₹50,000 for loans approved between April 1, 2016, and March 31, 2017.
Home loan tax benefits: Old regime vs. New regime
This is where the real confusion happens. Nearly all home loan tax benefits, Section 24(B), Section 80(C), and Section 80(EEA), apply only if you choose the tax regime. But under the new tax regime, you cannot claim any of these deductions on a self-occupied property.
Benefit | Old Tax Regime | New Tax Regime |
Section 24(b) interest deduction (self-occupied) | Up to ₹200,000 per year | Not available |
Section 80C principal deduction | Up to ₹150,000 per year | Not available |
Section 80EEA additional interest (if eligible) | Up to ₹150,000 per year | Not available |
Interest deduction on let-out property | Full interest, no upper cap* | Full interest, no upper cap* |
Loss from house property set off against salary | Allowed, up to ₹200,000 | Not allowed |
*Interest on a let-out property remains deductible against rental income in both regimes; the loss set-off restriction differs, as shown above.
How to calculate home loan tax benefits: Step by step
Here’s how you use the home loan tax-saving calculator or work it out Manually: Step by step
Get your annual interest and principal breakup from your bank's loan statement or amortisation schedule
take the lower of your actual annual interest paid or ₹200,000 (for a self-occupied property).
Take the lower of your actual annual principal repaid or ₹150,000, keeping in mind this limit is shared with other investments.
If you are eligible, add your section 80EEA deductions
Add up all eligible deductions and subtract this total from your taxable income.
Proven Example: How much tax you can save on a Home loan
Take a borrower with an Rs. 40 lakh home loan, falling under the old regime, in the 30% tax slab.
Particulars | Amount |
Home loan amount | ₹4,000,000 |
Interest rate (illustrative) | 8.5% p.a. |
Approx. interest paid in the year | ₹330,000 |
Approx. principal repaid in the year | ₹180,000 |
Deduction claimed under Section 24(b) | ₹200,000 (capped) |
Deduction claimed under Section 80C | ₹150,000 (capped) |
Total taxable income reduced by | ₹350,000 |
Approx. tax saved (30% slab, old regime) | ~₹105,000 + applicable cess |
Note: Your deduction amounts will vary from year to year due to the annual shift in EMI splits; interest is larger in the early years, and principal is higher subsequently.
A Note on the Income tax act, 2025
The Income Tax Act, 2025, repeals the Income Tax Act of 1961 with effect from April 1, 2026, and shall apply from the assessment year 2026-2027. Returns filed in 2026 for FY 2025-26 (AY 2026-27) will continue to be subject to earlier section numbers 24(b), 80C, and 80EEA. As per the revised act, Section 80C is renamed as Section 123 and Section 80EEA as Section 131 from Tax Year 2026-2027.
FAQs
What are the tax benefits on a home loan?
Basically there are some main tax benefits: interest deduction up to Rs. 200,000 under section 24(B), principal deduction up to Rs. 150,000 under section 80(C), and an additional interest deduction of Rs. 150,000 under section 80EEA for eligible first-time affordable housing buyers.
How much tax can I save on a home loan?
It completely depends on your loan amount, tenure, interest rate, and tax slab. As a broad estimate, a borrower in the 30% slab claiming the full Rs.200,000 (Section 24B) and Rs.150,000 (Section 80C) deductions can save roughly around Rs.105,000 or more in tax annually, plus applicable cess.
Can I claim home loan tax benefits under the new tax regime?
Not for a self-occupied property. The new regime does not permit 24(b) sections, 80C, and 80EEA. If the property is let, interest is still deductible against rental income under either regime.
Can I claim both Section 24B and Section 80C together?
Yes, you can apply to both components of your EMI: Section 24B to interest and Section 80C to principal.