What is the maximum tax deduction on home loan interest?

The maximum tax deduction on home loan interest depends on the property type, loan purpose, and applicable sections. For a self-occupied property, the ceiling under Section 24(b) is ₹2 lakh per year. First-time buyers may additionally claim ₹1.5 lakh under Section 80EEA, taking the total to ₹3.5 lakh per year.

Deduction Limits at a Glance

• Section 24(b) — Self-Occupied: Up to ₹2 lakh per year.
• Section 24(b) — Let-Out Property: Full interest amount (no ceiling); set-off limit ₹2 lakh.
• Section 80EEA (First-Time Buyers): Additional ₹1.5 lakh per year.
• Section 80EE (FY 2016-17 loans): Additional ₹50,000 per year.

Maximum Combined Deduction on Interest

• Self-occupied + eligible for 80EEA: ₹2 lakh + ₹1.5 lakh = ₹3.5 lakh.
• Self-occupied + eligible for 80EE: ₹2 lakh + ₹50,000 = ₹2.5 lakh.
• Let-out property: entire interest deductible (with ₹2 lakh set-off limit in current year).

Important Notes

• These deductions are available only under the Old Tax Regime.
• Interest certificate from the lender is mandatory documentation.
• Pre-EMI (pre-construction) interest is deductible in 5 equal instalments from year of possession.

The total interest deduction can be as high as ₹3.5 lakh per year for eligible first-time buyers under the Old Tax Regime. Taxpayers should calculate whether the old regime provides overall better savings compared to the new regime, especially when home loan interest deductions are large.