How to Save Income Tax on Your Home Loan in 2025

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Taking a home loan not only finances your dream property, but it also offers tax benefits that can lead to significant savings in the long run. Being aware of the available deductions can help you reduce your overall taxes for the assessment year.

A Brief Overview on Tax Benefits on Home Loans – Old vs. New Regime

The tax benefits of a home loan differ as per new and the old income tax regimes. The old tax regime offers several deductions while the new one makes compliance simple with a higher exemption limit. Here's a table to know about the benefits in detail.

Read More About: Income Tax Slab for FY 2025-26 (AY 2026-27)

What to Keep in Mind:

Old Tax Regime:

• It is ideal if you can take advantage of the deductions offered on the home loan repayment.
• If you are occupying the home, you can avail interest deductions for upto INR 3 lakh.
• First-time buyers benefit from extra deductions under Sections 80EE/80EEA.

New Tax Regime:

• Taxpayer will find tax filing easy with a higher basic exemption limit (INR  12 lakh post-Budget 2025).
• It is more appropriate for people with fewer deductions and incomes up to INR 12 lakh, where the normal rebate covers the majority of obligations.
• Home loan interest deduction is only permitted for let-out properties and is capped at taxable rental income.

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A Detailed View on Tax Deductions on Home Loans – Old vs. New Tax Regime

The house loan tax deductions under the previous and current tax regimes are listed in detail below. You can select the strategy that best fits your tax planning by going over them.

A. Under New Tax Regime

By providing a greater exemption threshold and reduced interest rates, the new income tax regime established under Section 115BAC streamlines the taxation process. But it also eliminates the majority of exemptions and deductions, including a number of important home loan tax advantages.

1. No Deductions for Principal Repayment

• Stamp duty, registration fees, and principal repayment of house loans are no longer eligible for deductions under Section 80C (up to INR 1.5 lakh per year).
• Additional deductions up to INR 1.5 lakh for first-time homebuyers under Sections 80EE and 80EEA have also been eliminated.

2. Interest Deduction Limited

• Interest paid under Section 24(b) cannot be deducted from self-occupied houses.
• Let-out properties: Section 24(b) interest deductions are still available, but losses from these properties cannot be deducted from wages or other sources of income.

• Losses that are not used can't be carried over to subsequent years.

3. No Set-off for House Property Loss

• The overall home loan rebate available in the event of a rented property is also impacted by set-off requirements. This could be deducted from other income under the previous administration, providing an extra income tax deduction for home loans.

B. Under Old Tax Regime

The old tax regime offers multiple home loan deductions that can lower your taxable income. These include interest, principal, and extra benefits for first-time buyers:

1. Home Loan Interest Deduction Under Section 24(b)

Interest paid on home loans taken out for home improvement, repair, construction, or purchase can be deducted from income taxes under Section 24b of the Income Tax Act.

• Self-occupied property: If the construction is finished within five years, the maximum tax advantage on a home loan is INR 2 lakh per year. The limit falls to INR 30,000 if it is postponed.
• Let-out property: The interest deduction has no upper limit.

Additional Points:

• Does not apply to principal, only to interest.
• Up to the annual ceiling, pre-construction interest may be collected in five equal installments following completion. Within the limits that apply, deductions can be claimed for a number of properties and debts.
• Each co-borrower is entitled to interest payments of up to INR 2 lakh per year for a self-occupied residence. The entire stake in a let-out property may be claimed, subject to certain limitations.

Note: This benefit is available only under old tax regime.

2. Pre-Construction Interest Deduction

According to Section 24 (b), the pre-construction interest on a home loan may be written off for five years in equal installments after the building is finished. Profitable properties are exempt from restrictions on deducted expenses, but self-occupied dwellings are subject to a cap of INR 2,00,000.

3. Deduction on Principal Repayment (Section 80C)

Section 80C allows you to deduct your home loan. This also covers the monthly equated monthly installments (EMIs) that are paid toward the loan. The annual maximum for all deductions is INR 1.5 lakh.

Up to INR 1.5 lakh can be claimed annually for principal repayment per borrower under the 80C maximum. Additionally, expenses like stamp duty and registration from the year of payment can be claimed. Your home loan rebate frequently includes a sizable portion of this piece.

For instance, you can deduct INR 1.5 lakh under Section 80C if your yearly principal repayment is INR 2 lakh.

4. Additional Deductions for First-Time Buyers (Sections 80EE and 80EEA)

Under sections 80EE and 80EEA of the Income Tax Act, Indian buyers of new homes enjoy special tax benefits. It functions as follows:

Section 80EE: Those who bought their first home loan between April 1, 2016, and March 31, 2017, are eligible for this deduction.

Eligibility Criteria:

• The maximum limit of the loan amount has to be INR 35 lakh.
• The value of the property must be INR 50 lakh or less.
• The borrower must not have any other residential property during the period from the loan sanction date till the loan is sanctioned.
• Even in the case of a shared loan, the co-borrowers may claim the deduction jointly if they meet the necessary requirements.

Section 80EEA: In order to support affordable housing, Section 80EEA offers a larger deduction of INR 1.5 lakh annually for interest paid.

Eligibility Criteria:

• The loan is available from April 1, 2019, until March 31, 2022.
• The property's stamp duty value shouldn't be more than INR 45 lakh.
• The candidate must be purchasing a home for the first time.

Similar to Section 80EE, only people are eligible for this benefit, and if both co-borrowers qualify, they may each claim the deduction independently. Look into DBS Treasures affordable house loans, which offer competitive terms along with expert support.

Tips to Save Tax on Home Loan

You can make the most of your tax options by making smart decisions:

• Choose Joint Ownership: You and your co-applicants must be co-owners of the property or contribute EMI repayments in order to receive the greatest advantage from a home loan tax.
• Claim Every Applicable Subsection: Verify using 24(b), 80C, 80EE, or 80EEA.
• Time Your Payments: Start the repayment at the beginning of the fiscal year for the most deductions.
• Maintaining Documentation: Prepare all loan certificates, co-ownership receipts, and other pertinent paperwork for tax submission.
• Use Tax Equipped Tools: When it comes to the tax benefit on accessible loans, using online tools can yield precise profit calculations.

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Conclusion

It doesn’t matter if you have purchased a new house for the first time or in the middle of the process owning an additional house, understanding the income tax repercussions to your home loan can significantly reduce costs. Provided, of course, the taxpayer qualifies, sections 24(b), 80C, and 80EEA have significant tax cuts. With sensible foresight, co-borrowers can maximize filing benefits if the proper planning is implemented.

Applying for home loans with DBS Treasures allows the borrower to receive personalized guidance all throughout the complicated process of financing the home.

Disclaimer: This article is for informational purposes only and does not constitute financial advice.