A mortgage loan is not only a financing tool to purchase or build property but also a smart way to reduce your tax liability if used correctly. Under the Income Tax Act, several provisions allow borrowers to claim deductions on both principal repayment and interest paid on a mortgage loan, subject to specific conditions.
This article explains all applicable tax benefits clearly, without altering legal intent or structure, so you can understand how to maximize savings.
What Is a Mortgage Loan for Tax Purposes
A mortgage loan is a loan secured against an immovable property such as a house, land, or commercial property. For income tax benefits, the loan must be used for one of the following purposes:
- Purchase of a residential house
- Construction of a residential house
- Renovation, repair, or reconstruction of a residential house
Loans taken against property for personal expenses or business use do not qualify for all deductions.
Deduction on Principal Repayment – Section 80C
Under Section 80C of the Income Tax Act, the principal portion of a mortgage loan repayment is eligible for tax deduction.
Key Conditions Under Section 80C
- Deduction is available only for residential property
- The house property must not be sold within 5 years from the end of the financial year in which possession is obtained
- Deduction applies only after construction is completed or possession is taken
- Maximum limit under Section 80C is shared with other investments
Maximum Deduction Limit
You can claim a deduction up to ₹1,50,000 per financial year under Section 80C, including:
- Principal repayment of mortgage loan
- Stamp duty and registration charges
- Other eligible 80C investments
Deduction on Interest Paid – Section 24(b)
The interest component of a mortgage loan qualifies for deduction under Section 24(b).
Interest Deduction for Self-Occupied Property
For a self-occupied residential property:
- Maximum deduction allowed: ₹2,00,000 per year
- Construction or purchase must be completed within 5 years from the end of the financial year in which the loan was taken
If construction is not completed within 5 years, the deduction limit is reduced to ₹30,000 per year.
Interest Deduction for Let-Out Property
For a let-out or deemed let-out property:
- No upper limit on interest deduction
- However, loss from house property that can be set off against other income is capped at ₹2,00,000 per year
- Remaining loss can be carried forward for 8 assessment years
Additional Interest Deduction – Section 80EE
Section 80EE provides an additional deduction for first-time home buyers.
Eligibility Conditions
- Loan must be sanctioned between specific government-notified periods
- Loan amount should not exceed ₹35 lakh
- Property value should not exceed ₹50 lakh
- The individual should not own any other residential property at the time of loan sanction
Deduction Limit
- Additional deduction of up to ₹50,000 per year
- Over and above Section 24(b)
Additional Deduction for Affordable Housing – Section 80EEA
Section 80EEA is applicable to affordable housing loans.
Key Conditions
- Loan sanctioned between 1 April 2019 and 31 March 2022
- Stamp duty value of the house should not exceed ₹45 lakh
- The taxpayer should not be eligible under Section 80EE
Deduction Limit
- Additional interest deduction up to ₹1,50,000 per year
- Over and above Section 24(b)
Pre-Construction Interest Deduction
Interest paid during the pre-construction period is also eligible for deduction.
How It Works
- Pre-construction interest is accumulated
- The total amount is allowed as deduction in 5 equal annual installments
- Deduction starts from the year in which construction is completed or possession is taken
- This deduction falls under Section 24(b) limits
Joint Mortgage Loan Tax Benefits
If a mortgage loan is taken jointly:
- Each co-borrower can claim deductions separately
- Both must be co-owners of the property
- Deductions are allowed in proportion to ownership and loan repayment
Each co-owner can claim:
- Up to ₹1,50,000 under Section 80C
- Up to ₹2,00,000 under Section 24(b), subject to conditions
New Tax Regime Impact on Mortgage Loan Deductions
Under the new tax regime:
- Deduction under Section 80C is not allowed
- Deduction under Section 24(b) for self-occupied property is not allowed
- Interest deduction for let-out property is also restricted
Taxpayers must carefully compare the old and new tax regimes before choosing.
Mortgage Loan Tax Benefit Specifications
| Section | Deduction Type | Maximum Limit | Applicable For |
|---|---|---|---|
| Section 80C | Principal repayment | ₹1,50,000 | Residential property |
| Section 24(b) | Interest on self-occupied house | ₹2,00,000 | Completed property |
| Section 24(b) | Interest on let-out house | No limit | Loss set-off capped |
| Section 80EE | Additional interest | ₹50,000 | First-time buyers |
| Section 80EEA | Additional interest | ₹1,50,000 | Affordable housing |
Important Points to Remember
- Tax benefits are available only after possession or completion
- Selling the property within 5 years can reverse Section 80C benefits
- Proper loan documents and interest certificates are mandatory
- Benefits differ based on property type and tax regime selected
