What are the tax benefits of taking a home loan?

What tax benefits can I claim on my home loan under the current rules? Can tax deduction be claimed on both principal and interest payments? How much can I save on taxes if I have a joint home loan with my spouse? Do I lose tax benefits if I rent out the property instead of living in it?

--Name withheld on request.

The 50 basis point repo rate cut over the last three months gives homebuyers the perfect opportunity to buy their own house now.

Both principal and interest can be claimed for a self-occupied property under the old tax regime. Home loan taken for a self-occupied property is eligible for a deduction of ₹1.5 lakh per annum on principal repayment under section 80C. Further, a deduction of ₹2 lakh per annum on interest is also available under section 24 (b). Both these deductions are available from the date of home possession.

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However, these deductions on principal and interest are not available under the new tax regime.

The government has further provided impetus to the real estate sector by extending these tax benefits up to two self-occupied properties per individual.

Under the old tax regime, both applicants of a joint home loan on a self-occupied property can individually claim a deduction of ₹1.5 lakh per annum on principal repayment under section 80C and ₹2 lakh per annum on interest under section 24(b).

This benefit is not available under the new tax regime.

By providing this tax benefit on the joint home loan, the government has further enhanced the affordability of home loans for working partners.

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You do not lose out on tax benefits if you rent out the property. Under the old tax regime, the rent received on let-out property, net of interest on home loan, is taxable. If the resultant is a loss, it can be set off against other sources of income up to ₹2 lakh.

Under the new tax regime also, the rent received on let-out property net of interest on home loan is taxable. However, if the resultant is a loss, it cannot be set off against other sources of income.

Through this tax benefit, the government is incentivising individuals to invest in a property by making the renting of the house affordable.

Also Read: Have a home loan? Here's how to squeeze the most out of it.

Sarosh Amaria is the managing director of Tata Capital Housing Finance Ltd.