How to calculate income tax benefits on home loan EMIs — explained

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With skyrocketing prices of houses, an average person can't buy a house without taking a home loan. In this article, we will discuss various aspects of tax benefits available for home loans.

A tax benefit is available in respect of repayment of principal amount under section 80 C up to ₹1.50 lakh along with other eligible items like life insurance premium, EPF, ELSS, PPF, school fee, etc. This deduction is available only in respect of the purchase or construction of a residential house for a home loan taken from specified entities like banks, housing finance companies, central government, state government, etc. These benefits can be claimed even in respect of part or full prepayment of home loans made during the year.

You are also allowed to claim a deduction in respect of interest paid on money borrowed for the purchase, construction, repair, and reconstruction of the property under Section 24(b). The amount of deduction depends on whether the property is self-occupied or is let out. 

In case the property is self-occupied you are allowed a maximum deduction of ₹2 lakh for a maximum of two self-occupied house properties taken together.

However, in case the property is let out, you are allowed to claim a full deduction for interest paid but you are allowed to set off a loss under the house property head only up to ₹2 lakh against other taxable income. The loss remains unabsorbed during the current year under the house property head and is allowed to be carried forward for set off against house property income in eight subsequent years.

Please note that the benefits in respect of interest payment are available in respect of interest paid on money borrowed for purchase, construction, repair, renovation, etc. This benefit is