Owning a home is more than just an aspiration; it is also a practical step toward building financial security. For first-time buyers, applying for a Home Loan not only makes property ownership achievable but also unlocks significant tax-saving opportunities. The Indian Income Tax Act provides a range of deductions on repayment of principal and Home Loan interest, enabling buyers to reduce their taxable income while building an asset.
This guide explores the tax benefits available to first-time homebuyers, explains how these deductions work, and highlights smart ways to maximise savings.
Why Tax Benefits Matter for First-Time Buyers
When you apply for a Home Loan, your repayment consists of two parts: principal and interest. Both are eligible for deductions under different sections of the Income Tax Act. For a first-time buyer, these benefits can result in substantial savings, especially in the early years when Home Loan interest outflow is higher.
Additionally, these deductions ease the financial pressure of EMI payments, making long-term property investment more manageable.
Key Tax Deductions on Home Loans
1. Deduction under Section 80C (Principal Repayment)
● Principal repayments of up to ₹1.5 lakh per financial year can be claimed under Section 80C.
● To qualify, the property must not be sold within five years of possession.
2. Deduction under Section 24(b) (Home Loan Interest)
● Up to ₹2 lakh per year can be claimed on Home Loan interest paid on a self-occupied property.
● For under-construction properties, interest paid during the construction phase can be claimed in five equal installments starting from the year of possession within the total ₹2 lakh limit. In case the the construction is not completed within 5 years, the limit reduces to ₹30,000.
● If the property is let out, there is no upper limit on interest deduction
3. Deduction under Section 80EE (Additional Interest for First-Time Buyers)
● This section allowed an additional deduction of up to ₹50,000 on interest for first-time buyers. Applicable if loan is ≤ ₹35 lakh and property value is ≤ ₹50 lakh.
● To qualify, the loan had to be sanctioned between April 1, 2016 and March 31, 2017.
● Since this window has closed, it only applies to eligible buyers who took loans during that period and are still repaying.
4. Deduction under Section 80EEA (Affordable Housing Benefit)
● Introduced to promote affordable housing, Section 80EEA offered an additional deduction of up to ₹1.5 lakh on Home Loan interest.
● It applied if the loan was sanctioned between April 1, 2019 and March 31, 2022, for properties valued up to ₹45 lakh.
● This benefit is no longer available for new loans but continues for eligible borrowers already claiming it.
● This deduction cannot be claimed along with 80EE
Old vs New Tax Regime: What First-Time Buyers Should Know
Under the old tax regime, all the above deductions—80C, 24(b), 80EE, and 80EEA—can be claimed, making it highly beneficial for first-time homebuyers.
In contrast, the new tax regime (available from FY 2020-21 onwards) offers lower tax rates but removes most deductions, including those for Home Loan repayment.
Therefore, first-time buyers aiming to maximise tax benefits may find the old regime more suitable, especially in the early repayment years when Home Loan interest outflow is higher.
Example: How Tax Benefits Enhance Savings
Consider Rahul, a first-time homebuyer who has taken a Home Loan of ₹40 lakh at a moderate interest rate. His annual repayment includes:
● ₹2.2 lakh as interest
● ₹1.3 lakh as principal
Here’s how his tax benefits work under the old regime:
● ₹1.5 lakh deduction under Section 80C for principal repayment
● ₹2 lakh deduction under Section 24(b) for interest repayment
Rahul’s total deduction is ₹3.5 lakh, reducing his taxable income significantly. If he falls under the 20% tax slab, this translates to around ₹70,000 saved annually.
Steps to Maximise Home Loan Tax Benefits
1. Choose the Right Loan Amount and Tenure
Selecting a loan amount that balances repayment capacity and tax-saving opportunities is crucial. A longer tenure may mean higher overall interest outgo, but it also allows greater deductions under Section 24(b).
2. Opt for Joint Ownership
If you buy the property jointly, both co-owners can claim deductions individually, effectively doubling the tax-saving potential. For example, a couple can together claim up to ₹4 lakh on interest under Section 24(b) if both are co-borrowers and co-owners.
3. Time Your Loan Disbursement
Tax benefits start only after construction is complete. Plan your loan disbursement so that possession aligns with your repayment schedule, ensuring you can claim deductions without delay.
4. Keep Proper Documentation
Maintain loan statements, possession certificates, and interest certificates issued by the lender. These are essential for filing returns and claiming benefits.
5. Evaluate Regime Choice Annually
Since the choice between old and new regimes can be made every year, assess your repayment and tax position annually to maximise savings.
Role of Banks in Home Loan Access
Leading banks such as ICICI Bank provide structured Home Loan offerings with transparent terms and digital tools. For instance, using a Home Loan interest calculator helps estimate EMIs, plan repayments, and understand how deductions might fit into your financial planning.
Such resources make it easier for first-time buyers to align borrowing decisions with long-term tax-saving goals.
Conclusion
For first-time homebuyers, a Home Loan is not just a path to owning property but also a way to build long-term savings through tax benefits. Sections 80C, 24(b), 80EE, and 80EEA (for eligible borrowers) collectively provide strong incentives to invest in property.
By planning strategically—choosing the right regime, maintaining documentation, and exploring joint ownership—buyers can reduce taxable income significantly. Partnering with trusted institutions like ICICI Bank ensures access to digital tools and calculators that make the journey transparent and manageable.
Disclaimer: The information provided here is based on income tax provisions applicable for AY 2026-27. Tax benefits are subject to change with amendments in law. Customers are advised to consult a tax advisor or refer to the official Income Tax Department website for the latest updates.
