Jun 15, 2023Home Ally

Tax Benefits of Mortgage Loans in India: Deductions and Exemptions

by Godrej Properties Limited



Exemptions & Deductions for Mortgage Loans in India

When it comes to purchasing a home, many individuals opt for mortgage loans to fulfil their dreams of homeownership. Apart from providing financial assistance, mortgage loans in India offer significant tax benefits to borrowers. These tax benefits not only help reduce the overall cost of borrowing but also make owning a home more affordable. This article will explore the various tax deductions and exemptions available to individuals with mortgage loans in India.

Analysing Tax Deduction & Exemption Of Mortgage Loans In India

1. Deduction On Home Loan Interest

One of the significant tax benefits of mortgage loans is the deduction available on the interest paid towards the loan. Under Section 24(b) of the Income Tax Act, 1961, borrowers can claim a deduction of up to Rs. 2 lahks per financial year on the interest paid on home loans for a self-occupied property.

2. Deduction On Principal Repayment

In addition to the interest deduction, borrowers can also claim a deduction on the principal repayment of their home loan under Section 80C of the Income Tax Act. The maximum deduction allowed for each financial year is Rs. 1.5 lakh, which includes other eligible investments such as Employee Provident Fund (EPF), Public Provident Fund (PPF), etc. However, to claim this deduction, the property should not be sold within five years from the date of possession.

3. Tax Exemption On House Rent Allowance (HRA)

If you are a salaried individual and receive a House Rent Allowance (HRA) from your employer while also repaying a home loan, you can enjoy a dual benefit. The HRA can be exempted from tax under Section 10(14) of the Income Tax Act while also claiming deductions on the home loan interest and principal repayment, as mentioned earlier.

4. Exemption On Capital Gains

If you decide to sell your property after holding it for a certain period, any profit from the sale is considered capital gains. However, under Section 54 of the Income Tax Act, you can claim an exemption on capital gains if the proceeds are reinvested in purchasing another residential property. 

On Conclusion

Mortgage loans not only provide financial support for purchasing a home but also offer significant tax benefits to borrowers in India. From deductions on home loan interest and principal repayment to exemptions on capital gains and affordable housing benefits, the tax advantages associated with mortgage loans make homeownership more accessible and affordable. It is essential for borrowers to understand and leverage these tax benefits to optimise their overall financial planning and reduce their tax liabilities.


Frequently asked questions

1. Can I claim tax benefits for an under-construction property?

Ans. Yes, you can claim deductions on the interest paid during the pre-construction or under-construction period. 

2. Are there any other tax benefits related to mortgage loans in India?

Ans. Apart from the deductions and exemptions mentioned above, there are no other major tax benefits related to mortgage loans in India. 

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