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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.
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
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
Year 1 of a 20-year loan: EMI is often 75-85% interest. Year 15: that same EMI can be 75-85% principal — the split flips over time
Self-occupied
Interest deduction capped at ₹2 lakh per year — this is the common scenario for most first-time home buyers.
Let-out (rented)
No upper cap on the interest deduction itself, though there are separate rules on how much total loss from house property can be set off against other income each year.
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.
💡 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.
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, and is only available under the Old Tax Regime.