Tax-Saving Strategies with Home Loan Interest Deduction for FY 2025-26

Buying a home is not just a personal milestone; it’s also a smart financial move when done right. Along with building long-term assets, a Home Loan can help you reduce your income tax liability significantly.

Whether you’re repaying interest or principal, the Income Tax Act allows you to claim multiple deductions.

But with the introduction of the new tax regime and yearly updates in fiscal policy, it’s essential to stay informed. This guide will help you understand how to make the most of Home Loan interest deduction in FY 2025-26.

Understanding Section 24(b): Home Loan Interest Deduction

Section 24(b) of the Income Tax Act allows individuals to claim deductions on the interest paid on a Home Loan. For self-occupied properties, the maximum deduction allowed is ₹2,00,000 per financial year. If your property is rented out, there’s no cap; the entire interest paid is deductible.

For example, if you’re paying ₹3.5 lakh annually in interest on a rented home, the entire amount can be claimed as a deduction under this section.

To qualify:

• The loan must be for purchase, construction, renovation or reconstruction.
• The property construction must be completed within 5 years from the end of the financial year in which the loan was sanctioned.
• An interest certificate from the lender must be submitted.

Claiming Pre-Construction Interest

Home buyers often overlook this hidden benefit. If you’re paying EMIs while the property is under construction, the interest paid during this phase (called pre-construction interest) can be claimed in 5 equal installments, starting from the year the property is ready to occupy.

Let’s say you paid ₹5 lakh in interest before possession. You can claim ₹1 lakh every year for 5 years in addition to your regular interest deduction.

Joint Home Loans: Double the Tax Advantage

A great way to maximize deductions is by opting for a joint Home Loan. If both borrowers are co-owners and are repaying the loan, each can individually claim:

• ₹2,00,000 under Section 24(b) for interest
• ₹1,50,000 under Section 80C for principal repayment

This strategy works especially well for working couples looking to optimize household tax savings. It also improves loan eligibility, helping you finance better properties.

How Section 80C Complements Your Tax Savings

Section 80C of the Income Tax Act allows a deduction of up to ₹1,50,000 on the principal repaid during the financial year. This includes payments toward stamp duty and registration, but only in the year they are paid.

However, this limit is shared with other investments like PPF, life insurance premiums, and ELSS. So plan your investment strategy smartly to avoid overlap and get full value from your Home Loan interest deduction.

Important: To claim 80C deductions, the property must not be sold within 5 years of possession. If sold earlier, the benefits claimed will be reversed and added to your taxable income.

Additional Benefits Under Section 80EE and 80EEA

Depending on when your loan was sanctioned and the value of your property, you may also qualify for additional deductions.

• Section 80EE: Offers up to ₹50,000 for first-time home buyers. The loan must have been sanctioned between April 1, 2016, and March 31, 2017.
  
• Section 80EEA: Allows an extra ₹1,50,000 deduction if the loan was sanctioned between April 1, 2019, and March 31, 2022. Property value must be within ₹45 lakh.

These benefits are over and above the limits under Section 24(b) and 80C. However, you can claim only one, either 80EE or 80EEA, not both.

How the New Tax Regime Affects Your Deductions

If you opt for the new tax regime under Section 115BAC, you won’t be able to claim most Home Loan deductions. Only interest on let-out properties is allowed under Section 24(b). For self-occupied homes, all deductions under Sections 80C, 24(b), 80EE, and 80EEA are not applicable.

Before switching regimes, run the numbers on a home loan EMI calculator. Consider your loan tenure, annual repayments, and investment declarations. Choosing the right regime can make a difference of thousands in annual savings.

Quick Recap of Home Loan Tax Benefits

Section	Benefit Type	Maximum Deduction	Condition
24(b)	Interest on Home Loan	₹2,00,000	Self-occupied
24(b)	Interest on Home Loan	No limit	Rented property
80C	Principal repayment	₹1,50,000	Only for completed properties
80EE	Additional interest	₹50,000	First-time buyer, loan in FY 2016-17
80EEA	Additional interest	₹1,50,000	Property below ₹45 lakh

Practical Tip for Maximising Benefits

If you have multiple houses, consider declaring the one with higher interest outgo as a let-out to enjoy unlimited deduction under Section 24(b). And if you’re in a dual-income household, plan a joint loan structure where both borrowers contribute and claim proportionate benefits. You’ll double your savings legally and efficiently.

Additionally, use a Home Emi Calculator regularly to track how prepayments, interest rate changes, or loan restructuring affect your repayments and tax eligibility.

Final Thoughts

Owning a home is more than just a milestone—it can be a powerful tool for reducing your tax burden. With a bit of planning, a Home Loan gives you access to multiple deductions that together offer significant annual savings. But to truly maximize the value, you need to understand which sections apply, stay updated with changes, and align your repayment strategy accordingly.

Choosing the right financing partner is just as important. A lender that supports your tax-saving journey while offering flexibility and transparency, like Godrej Capital, can make all the difference in achieving financial stability.

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