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Principal goes under 80C — but the interest has its own separate deduction.
A home loan EMI has two parts: principal and interest. The principal portion counts toward the ₹1.5 lakh 80C limit. The interest portion gets its own separate deduction under Section 24(b) — up to ₹2 lakh per year for a self-occupied property, entirely independent of the 80C pool.
| EMI Component | Deduction Section | Limit |
|---|---|---|
| Principal | 80C | Shares the same ₹1.5 lakh pool as ELSS, PPF, EPF, and insurance premiums |
| Interest | 24(b) | A separate ₹2 lakh limit, entirely independent of the 80C pool |
Law update: Under the Income-tax Act, 2025 (effective 1 April 2026), Section 24(b) has been reorganised under the new house-property income chapter, with a fresh section number. The ₹2 lakh self-occupied limit and every rule described below is unchanged — only the reference number has moved.
Home loan EMIs are interest-heavy in the early years and shift toward principal over time — a structure called amortization. This means your 24(b) deduction is often close to its full ₹2 lakh limit early in the loan, and gradually shrinks as more of each EMI shifts toward principal.
A rough illustration: in Year 1 of a 20-year loan, the EMI is often 75-85% interest. By Year 15, that same EMI can be 75-85% principal — the split flips over time. This means the tax benefit under 24(b) is generally at its most valuable early in the loan's life and steadily fades as the loan matures, even though the EMI amount itself stays the same throughout.
Interest paid while a property is still under construction isn't deductible in the year it's actually paid. Instead, the total pre-construction interest accumulated is claimed in five equal instalments starting from the year construction is completed, subject to the overall ₹2 lakh annual limit. This means someone paying interest for two years during construction doesn't lose that deduction — it simply gets deferred and spread out once possession begins, alongside the interest on the completed property going forward.
If both co-borrowers are also co-owners and each pays their share of the EMI, each can typically claim their own ₹2 lakh interest deduction separately — effectively doubling the household's total claimable interest deduction to ₹4 lakh combined. This is one of the more overlooked tax planning opportunities for couples taking a joint home loan, since it requires no additional cost beyond structuring the ownership and EMI payment correctly from the start.
For example: a couple takes a joint home loan with EMI split equally between them, and both are listed as co-owners on the property. If the combined annual interest comes to ₹3.6 lakh, each partner can individually claim up to ₹1.8 lakh under their own 24(b) limit — the full interest amount ends up deductible across the two returns, rather than being capped at ₹2 lakh total as it would be for a single borrower.
Like most other deductions covered in this pillar, Section 24(b) is only available if you file under the Old Tax Regime. Factor this in when comparing Old vs New Regime for any year you're paying a home loan — this deduction alone can be significant enough to tip the decision toward the Old Regime, especially in the early, interest-heavy years of the loan.
Combined with 80C principal and other deductions, a home loan often makes the Old Regime the cheaper option in its early years — recalculate each year rather than assuming, since the interest-to-principal split (and therefore the deduction value) changes every year of the loan.
Key Takeaway: Home loan principal falls under 80C; interest falls under Section 24(b), a separate ₹2 lakh limit for self-occupied property. The interest deduction is usually largest in the early years of the loan due to amortization, joint co-owner loans can effectively double the household's claimable deduction, and pre-construction interest can still be claimed over 5 years starting from possession. This deduction is only available under the Old Tax Regime.
Rules around a second self-occupied property and its interest deduction have changed over the years — a second house may be treated differently for interest deduction purposes, so it's worth checking the current rules specifically for multiple properties before assuming the same ₹2 lakh cap applies identically.
Interest paid during construction is typically not deductible in the year it's paid, but can usually be claimed in equal instalments over 5 years starting from the year construction is completed, subject to the overall ₹2 lakh limit.
If both co-borrowers are also co-owners and each pays their share of the EMI, each can typically claim their own ₹2 lakh interest deduction separately — effectively doubling the household's total claimable interest deduction.
Your lender issues an annual interest certificate breaking down the principal and interest paid during the financial year — this is the key document to submit to your employer or reference while filing your return.
Yes — because of amortization, the interest portion of each EMI shrinks over time while the principal portion grows, meaning the actual amount available to claim under 24(b) also decreases as the loan matures, even though the ₹2 lakh cap itself doesn't change.
Disclaimer: This article is for general educational purposes only and does not constitute personalized financial, investment, tax, or legal advice. Figures, rates, and rules mentioned may change over time — verify current details with an official source or a qualified professional before making financial decisions.