Interest paid gets partially offset by IT benefits which results in reducing the net cost of investment property loan vs home loan. The tax benefits on home loans availed for the purpose of purchase or construction of a house property are provided under two separate provisions of the IT Act. When we borrow a housing loan, we are required to repay the loan in monthly installments spread over the tenure of the loan. IT Act differ in many respects.
Maximum tax deduction for repayment principal component of home loan can’t exceed Rs one lakh under section 80c. Housing loan interest deduction, on the other hand, is allowed up to a maximum amount of Rs 1. In case of let-out or deemed to be let out house property, interest is deductible fully without any limit. Contrary to popular perception, deduction on principal component of home loan under section 80c is allowed as soon as you start repaying the home loan. However, interest deduction for pre-acquisition or pre-construction period is also allowed but only after acquisition or construction is complete. It is allowed in 5 equal annual installments.