Housing loan
Also written Home loan
A loan for construction, renovation, extension or purchase of property, whose principal qualifies for a Section 80C deduction and whose interest qualifies for a Section 24 deduction on loans taken after 1 April 1999.
In plain language
A housing loan is not just for buying a ready-built flat. The booklet's own list covers construction of a house, renovation, extension, and buying property or land — a wider range of house-related purposes than the name might suggest.
What sets a housing loan apart from other loan types in the same chapter is the tax treatment that comes with it, covered in a different chapter of the same booklet. Two separate parts of the loan are treated differently: the principal you repay each year and the interest you pay each year both qualify for their own, separate income tax deductions.
How it works
Chapter 8's definition: "Housing Loans are taken by people for a variety of house-related purposes such as construction of a house, house renovation, extension of house, buying of property or land, etc."
Chapter 10's tax rules attach two distinct deductions to a housing loan:
- Section 80C: covers, among other items, "principal repayment of housing loan" — the amount you repay each year that reduces the outstanding loan, not the interest portion.
- Section 24: covers "Interest paid on housing loan availed for purposes of acquisition of property, construction of property or repair of property," and is applicable on housing loans availed after 1 April 1999.
As with any loan, a bank assessing a housing loan application still applies the standard document checklist and the 5 Cs of credit from earlier in Chapter 8, and the property itself is typically taken as collateral.
A worked example
Kavya takes a Rs 30,00,000 housing loan in the current year to buy a flat, repayable over 20 years by EMI.
In her first year, her EMIs total Rs 2,88,000, made up of roughly Rs 45,000 of principal repayment and Rs 2,43,000 of interest, since a home loan's early EMIs are mostly interest.
Her Rs 45,000 of principal repayment counts toward her Section 80C deduction, alongside other 80C investments such as life insurance premiums or an ELSS. Separately, her Rs 2,43,000 of interest paid is eligible for a Section 24 deduction, since her loan was taken well after the 1 April 1999 cutoff the booklet names. The two deductions sit under different sections of the Income Tax Act and are claimed separately, even though both arise from the very same monthly EMI.
Why NISM asks about it
Chapter 8 (Borrowing-Related Products) defines the housing loan's purposes; Chapter 10 (Tax Saving Options) attaches Section 80C to the principal and Section 24 to the interest. Expect a question distinguishing which section covers which component of the EMI, and the 1 April 1999 cutoff for Section 24 eligibility.
Common exam traps
- Principal repayment is Section 80C; interest paid is Section 24. The two components of the same EMI are claimed under two different sections — a common point of confusion.
- Section 24's interest deduction applies only to loans availed after 1 April 1999 — the booklet states this cutoff explicitly.
- A housing loan covers renovation and extension, not only purchase or construction — do not read it narrowly as a purchase-only product.
- Section 80C has an overall combined ceiling shared with other 80C investments such as life insurance and ELSS — the booklet does not restate the ceiling figure inside the housing loan discussion itself, so do not assume the principal repayment gets a separate, uncapped deduction.
Check yourself
1.Section 24 allows a deduction for interest on a housing loan taken for which purposes, and subject to what date condition?
- a)Acquisition only; loans availed after 1 April 2009
- b)Acquisition, construction or repair of property; loans availed after 1 April 1999
- c)Acquisition or construction only; no date condition
- d)Any purpose; loans availed after 1 April 1961
Show the answer
Answer: (b) Acquisition, construction or repair of property; loans availed after 1 April 1999
"Interest paid on housing loan availed for purposes of ACQUISITION OF PROPERTY, CONSTRUCTION OF PROPERTY OR REPAIR OF PROPERTY. Applicable on housing loans availed AFTER APRIL 1, 1999." Three purposes, so a renovation loan qualifies and not only a purchase — a point families often miss. And the date condition is 1 April 1999. Keep this section firmly apart from 80C, which covers the principal repayment of the same loan: one instalment, two sections. On a loan only a few years old the interest is much the larger component, so a borrower who claims the whole EMI under 80C forfeits the bigger deduction — and 80C is crowded anyway, since it also holds life insurance, provident fund, ELSS, five-year special bank deposits, NPS Tier 1 and NSC, while Section 24 competes with none of them.
2.During a year a borrower repaid ₹1,40,000 of housing loan principal and paid ₹2,60,000 of interest on a loan taken in 2021. How should the ₹4,00,000 be treated?
- a)The whole ₹4,00,000 under Section 80C
- b)₹1,40,000 under Section 80C and ₹2,60,000 under Section 24
- c)The whole ₹4,00,000 under Section 24
- d)₹2,60,000 under Section 80C and ₹1,40,000 under Section 24
Show the answer
Answer: (b) ₹1,40,000 under Section 80C and ₹2,60,000 under Section 24
A single EMI does two different things and the Act treats them separately. Principal is among the 80C items — "…PRINCIPAL REPAYMENT OF HOUSING LOAN, etc." Interest falls under Section 24 — "INTEREST PAID ON HOUSING LOAN availed for purposes of acquisition of property, construction of property or repair of property", applicable to loans "availed after April 1, 1999", which a 2021 loan comfortably satisfies. Getting this wrong is expensive in life as well as in the exam: on a loan only three years old the interest is by far the larger half — ₹2,60,000 against ₹1,40,000 here — so claiming everything under 80C forfeits the bigger deduction. There is a second reason the split matters: 80C is a crowded basket that also holds life insurance, provident fund, ELSS, five-year special bank deposits, NPS Tier 1 and NSC, so ₹1,40,000 of principal may already fill much of it, while Section 24 competes with none of those.
3.A taxpayer whose Section 80C limit is already exhausted by housing loan principal and provident fund contributions also invests in NPS Tier I and NPS Tier II. What is the best treatment?
- a)Claim both Tier I and Tier II under Section 80C
- b)Claim the Tier I contribution under Section 80CCD(1B), which is over and above 80C; the Tier II contribution attracts no deduction
- c)Claim Tier II under 80CCD(1B) and Tier I under 80C
- d)Neither contribution is deductible once 80C is exhausted
Show the answer
Answer: (b) Claim the Tier I contribution under Section 80CCD(1B), which is over and above 80C; the Tier II contribution attracts no deduction
Two rules decide this. First, 80C names "contribution to NPS account (TIER 1 ACCOUNT ONLY)", and Chapter 7's tier table says the same from the other side — Tier I investments "are eligible for tax benefits" while Tier II "aren't eligible." So the Tier II contribution earns nothing under this chapter, which disposes of options (a) and (c). Second, 80CCD(1B) is the only stacking deduction here: "IN ADDITION to deduction claimed under Section 80C... Amount available for deduction under this section is OVER AND ABOVE the amount available for claiming deduction under Section 80C." With 80C already full, claiming the NPS contribution there would yield nothing, whereas 80CCD(1B) competes with no other instrument. Note the trade behind Tier II: it offers freedom — "the subscriber is free to withdraw savings from this account whenever the subscriber wants to" — and restriction and tax benefit travel together, exactly as with Chapter 4's five-year Special Bank Term Deposit.
Where this is taught
Free preparation for NISM Series SEBI-ICERelated terms
- BorrowingTaking money and paying it back over a period, usually through Equated Monthly Instalments, used to meet a financial goal when savings alone are not enough.
- CollateralA property or other asset a borrower pledges as security for a loan, which the lender can seize if repayments stop; the lender's claim to it is called a lien.
- Income taxThe tax every individual, HUF and other assessee pays on annual income under the Income Tax Act, 1961, with deductions available under sections such as 80C, 80CCD(1B), 80D, 80G, 80TTA and 24.
- Credit Linked Subsidy SchemeA Pradhan Mantri Awas Yojana subsidy for first-time home buyers in the Economically Weaker, Lower Income and Middle Income groups, denied to anyone who already owns a house or has used a housing subsidy before.
- Personal loanAn unsecured loan from a bank that can be used for any purpose — such as paying off debt, a marriage, or a vacation — with no collateral required.
- Pradhan Mantri Mudra YojanaA government scheme offering business loans to small and medium enterprise proprietors, in three tiers — SHISHU, KISHOR and TARUN — sized by the loan amount.
- Pre-construction interestInterest paid on a home loan for the period before the property was acquired or constructed, deductible from house property income in 5 equal instalments starting the year of acquisition or construction.