Home Loan Tax Benefits for Flat Buyers in Mumbai: What Can You Claim?

Your EMI has two parts, interest and principal, and each is treated differently for tax.

• Interest: Section 24(b) of the Income Tax Act, 1961

• Principal: Section 80C

• Stamp duty and registration charges: Section 80C, in the year you pay them

• Extra interest deduction: Sections 80EE and 80EEA, only for older loans

The new Income Tax Act, 2025, applies from FY 2026-27, and the section numbers have changed. The interest deduction for a self-occupied home, for instance, now sits under Section 22. The limits remain the same, so the ideas below still hold. Just check the current section numbers when you file.

Interest - If you live in the flat, you can claim up to ₹2 lakh a year on the interest you pay. If you rent it out, there is no cap on the interest you can set against rental income. But if the interest is more than the rent, the loss you can adjust against your other income is limited to ₹2 lakh a year. The rest can be carried forward for eight years.

Principal - The principal part of your EMI qualifies under Section 80C, up to ₹1.5 lakh a year. This limit is shared with PPF, EPF, life insurance premiums, tax-saving FDs and similar items. If those already fill the limit, your home loan principal adds nothing extra.

Stamp duty and registration - In Mumbai these charges are a big sum. You can claim them under 80C too, but only in the year of payment and within the same ₹1.5 lakh limit.

Sections 80EE and 80EEA - These gave first-time buyers an extra interest deduction, but only on loans sanctioned up to 31 March 2022. New borrowers cannot claim them.

This is where most of the confusion happens. The new regime is now the default, and it removes most home loan deductions for a self-occupied home. Here is how the two compare.

So which one should you pick? It depends on your total deductions. Add up your home loan interest, 80C investments, health insurance and anything else you claim, then calculate your tax both ways. If the deductions are large, the old regime often wins. If they are small, the lower rates of the new regime may work out cheaper. A chartered accountant can do this comparison for you in a few minutes.

Apart from the basic deductions, a few other rules matter, especially in a city like Mumbai where many people buy together or buy before the building is ready.

Joint loans. If you buy with your spouse or another co-owner, and both of you are owners and co-borrowers, each person can claim separately. That is up to ₹2 lakh on interest and ₹1.5 lakh on principal per person, provided both actually pay the EMI. For couples, this can double the benefit.

Under-construction flats. You cannot claim any interest until you get possession. Once you do, the interest paid during construction can be claimed in five equal yearly instalments. It gets added to that year’s interest, and the total is still capped at ₹2 lakh for a self-occupied home.

Construction timeline. To get the full ₹2 lakh, construction should be completed within five years from the end of the financial year in which you took the loan. If it takes longer, the limit drops to ₹30,000. This matters for projects that run late.

Second home. You can treat up to two houses as self-occupied. The ₹2 lakh cap applies to the total across both, not to each one.

A lot of people lose their deductions over small things.

• The loan has to come from a bank, housing finance company or another approved lender. Money borrowed from friends or relatives does not qualify for the principal deduction.

• If you sell the flat within five years of getting possession, the 80C deductions you claimed earlier get added back to your income in the year of sale.

• Collect the interest certificate from your lender every year. It shows the exact principal and interest split.

• Keep the possession letter, agreement and stamp duty receipts safe. You may need them if the tax department asks for proof.

• If you are salaried, tell your employer which regime you have chosen, so the TDS is calculated correctly.

Suppose you buy a flat in Mumbai and live in it. In one year you pay ₹3.2 lakh as interest and ₹1.2 lakh as principal. Under the old regime, you can claim ₹2 lakh for interest, because of the cap and ₹1.2 lakh for principal if your 80C limit is free. That makes ₹3.2 lakh in total. For someone in the 30% slab, that can save roughly ₹1 lakh in tax for the year, before cess.

If you and your spouse are co-owners and both pay the EMI, you can each claim your own share, and the savings go up further.

Home loan tax benefits can lower the real cost of owning a flat, but they work mainly under the old regime. Interest up to ₹2 lakh and principal up to ₹1.5 lakh are the two big ones, and a joint loan can double them. Under-construction flats get the benefit only after possession. Before you finalise the loan, compare both regimes, check how much of your 80C limit is already used, and think about who should be the co-owner. A bit of planning at the start can keep saving you money for as long as the loan runs.