Home loan tax deductions
- Section 24(b) — deduction on home loan interest, up to ₹2 lakh per year for a self-occupied property (no upper cap for a let-out property, subject to overall loss set-off rules)
- Section 80C — principal repayment is deductible up to ₹1.5 lakh per year, within 80C's overall combined limit alongside other eligible investments
- Certain additional deductions have existed for first-time and affordable-housing buyers in specific years (e.g. Section 80EE/80EEA) — these come with eligibility conditions and sunset clauses, so check current applicability
Capital gains tax when you sell
How your gain is taxed depends on how long you held the property:
- Long-term (held over 24 months) — gains are typically eligible for indexation, which adjusts your original purchase cost for inflation before calculating the taxable gain, reducing your tax liability
- Short-term (held under 24 months) — gains are added to your income and taxed at your regular income tax slab rate, with no indexation benefit
Exemptions available on reinvestment
- Section 54 — long-term capital gains from selling a residential property can be exempted if reinvested into another residential property within specified timelines (generally 1 year before to 2-3 years after the sale)
- Section 54EC — gains can alternatively be invested in specified capital gains bonds (like those from NHAI/REC) within 6 months of sale, up to a prescribed limit, to claim exemption
Both routes have specific conditions on timelines, lock-in periods, and the amount that qualifies — a chartered accountant should confirm your exact eligibility before you rely on either.
Tax on rental income
Rental income is taxed under "Income from House Property." A standard deduction of 30% is allowed against the rental income for maintenance, regardless of your actual expenses, and home loan interest (if any) can be deducted separately. The net figure is added to your total income and taxed at your applicable slab rate.
Frequently asked questions
What tax deductions can I claim on a home loan?
Under Section 24(b), you can claim up to ₹2 lakh per year on home loan interest for a self-occupied property. Under Section 80C, principal repayment (up to ₹1.5 lakh, within the overall 80C limit) is also deductible. Rules and limits can change in annual budgets, so verify current figures with a chartered accountant.
How is capital gains tax calculated when I sell property?
If held for more than 24 months, gains are treated as long-term capital gains, typically eligible for indexation benefit (adjusting the purchase cost for inflation) which reduces the taxable gain. If held less than 24 months, it's short-term capital gains, taxed at your regular income tax slab rate.
Can I avoid capital gains tax when selling a property?
You may be able to reduce or defer long-term capital gains tax by reinvesting the gains into another residential property under Section 54, or into specified capital gains bonds under Section 54EC, within prescribed timelines. Each has specific conditions — a chartered accountant should confirm eligibility for your situation.
Is rental income from property taxable?
Yes, rental income is taxable under 'Income from House Property,' with a standard 30% deduction allowed for maintenance regardless of actual expenses, plus home loan interest deduction if applicable. It's added to your total income and taxed at your applicable slab rate.