What is Section 130?
Section 130 of the Income Tax Act, 2025, is a provision introduced to encourage first-time homebuyers by offering additional tax relief on the interest paid on Home Loans. This section applies only to individual taxpayers purchasing their first residential property and meeting specific conditions related to loan amount, property value, and loan sanction period.
What is Section 130 Deduction?
The Section 130 deduction allows eligible first-time homebuyers to claim an additional deduction of up to Rs.50,000 per tax year on the interest component of a Home Loan. This deduction is available over and above the Rs.2 Lakh limit under Section 22.
Eligibility Criteria to Claim Deduction Under Section 130
The exemptions in this section are available to individual taxpayers only. This means that if you are someone like an Association of Persons (AOP), a company, trust, partnership firm, or any other kind of taxpayer, you cannot claim these rebates. Individuals who wish to secure this benefit should not own any other house property at the time of Home Loan sanction.
What is the Purpose of Section 130?
Section 130 is designed to make homeownership more affordable for first-time homebuyers by offering them extra tax relief on the interest paid on Home Loans. It allows eligible individuals to claim an additional deduction of up to Rs.50,000 on interest, over and above the standard Home Loan interest deduction under Section 22. This incentive encourages home purchase by reducing the overall tax obligation on housing loan interest payments, especially for new buyers with modest property values and loan amounts.
Documents Required to Claim Deduction under Section 130
To successfully claim Section 130 deductions, it is essential to have the right set of documents in place. Here is what you will need:
- Home Loan Sanction Letter -This is issued by the lender. It confirms the loan amount, sanction date, and basic terms, which are useful in establishing whether your loan meets the eligibility conditions under Section 130.
- Loan Account Statement or Interest Certificate - This is a document issued by your lender. It shows the total interest paid during the tax year. This helps validate the deduction amount claimed under Section 130.
- Loan Agreement Copy - The original agreement signed with the lender confirms that the loan amount does not exceed Rs.35 Lakh and that the property is your first residential purchase.
- Property Purchase Documents (Sale Deed or Registration Papers) - These prove that the value of the property was Rs.50 Lakh or less at the time of purchase.
- Ownership and Identity Proof - Documents such as your PAN Card, Aadhaar Card, or property registration records that prove you are the legal owner and primary borrower.
- ITR with Home Loan Disclosure - Your income tax return should include key Home Loan details, such as the lender’s name, loan account number, interest paid, and loan sanction date, under the appropriate section.
What are the Terms for Declaring Section 130 Deductions?
Home Loan borrowers can claim Section 130 exemptions subject to fulfilling certain conditions such as:
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This particular tax concession is only available for first-time homeowners.
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The market value of the property you seek to purchase with the loan funds should be less than Rs.50 Lakh.
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You can obtain exemptions up to Rs.50,000. This is in addition to the rebate of Rs.2 Lakh that one may claim on Home Loan interest deduction under Section 22 of the Income Tax Act, 2025.
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Only the interest component of the house loan qualifies for tax deduction claims.
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The loan amount sanctioned should not exceed Rs.35 Lakh.
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A recognised financial institution such as a bank, housing finance company (HFC), or non-banking financing company (NBFC) must approve and disburse the loan.
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The loan must be sanctioned between 1 April 2016 and 31 March 2017.
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Borrowers need to furnish a declaration mentioning the loan amount paid as well as outstanding towards the loan interest and principal repayment in order to claim the deductions.
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Section 130 tax rebates are applicable on a per-person basis and not on per per-property basis. Hence, if two individuals own a house and also avail of a Home Loan, each of them can enjoy the exemptions separately.
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One should obtain the loan only for purchasing a residential house and not for buying a commercial property.
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After declaring the tax benefits, the balance income of the borrower is liable to be taxed as per the appropriate income tax slab rates.
Who Can Claim the Deductions Under Section 130?
Given below are the requirements for claiming housing loan interest exemptions under Section 130:
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You can claim exemptions either individually or jointly. If you own a house with your spouse and repay a Home Loan together as financial co-applicants, both of you can obtain the rebates individually. This combined amount will double the tax benefits.
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You are a first-time homebuyer and hold no property in your name during the time of loan sanction.
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The property can be self-occupied or the owner may choose to rent it to someone else. For instance, if you have a property in Hyderabad and live in a rented flat in Chennai, you can still obtain the rebates.
How to Claim Tax Deductions Under Section 130 of the Income Tax Act?
To understand the tax deduction amount one can claim under Section 130, just follow these simple steps:
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First and foremost, you need to calculate the total amount of interest paid on your Home Loan in a single tax year.
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After that, you may proceed to claim the initial deductions up to Rs.2 Lakh applicable under Section 22 of the Income Tax Act, 2025.
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The surplus amount can then be claimed up to Rs.50,000 under Section 130 of the Income Tax Act, 2025.
What is the Difference between Section 130 and 131 Deduction?
Section 131 is a relatively new introduction since the 2019 Union Budget. It proffers tax rebates on Home Loan interest up to a maximum limit of Rs.1.5 Lakh if the loan has been availed for low-cost housing during the period of 1 April 2019 to 31 March 2022. The purchase of the house in question must be the first home registered in your name and you must not hold ownership over any other property. Moreover, if you have already claimed benefits under Section 130, you will not be considered eligible for securing benefits under Section 131.
Also Read: Section 130: Claim Deductions on the Home Loan Interest Paid
| Aspect | Section 130 | Section 131 |
|---|---|---|
| Purpose | To support first-time homebuyers with additional tax relief on Home Loan interest | To promote affordable housing through higher interest deduction |
| Maximum deduction allowed | Up to Rs.50,000 per tax year | Up to Rs.1.5 Lakh per tax year |
| Applicable on | Interest paid on a Home Loan | Interest paid on a Home Loan |
| Eligible taxpayer | Individual first-time homebuyers | Individual first-time homebuyers |
| Loan sanction period | Loan must be sanctioned between 1 April 2016 and 31 March 2017 | Loan must be sanctioned between 1 April 2019 and 31 March 2022 |
| Maximum loan amount | Loan amount should not exceed Rs.35 Lakh | No specific loan limit, but the property purchased should have a carpet area of up to 60 square metres in metro cities and up to 90 square metres in non-metro towns and cities |
| Maximum property value | Property value should not exceed Rs.50 Lakh | Stamp duty value should not exceed Rs.45 Lakh |
| Can it be claimed with Section 22? | Yes, over and above Section 22 limit | Yes, over and above Section 22 limit |
| Can both be claimed together? | No | No |
What is the Difference between Sections 22, 130, and 131?
Sections 22, 130, and 130 offer tax exemption on the interest outgo of a housing loan. The difference between these sections is given below:
| Features | Section 22 | Section 130 | Section 131 |
|---|---|---|---|
| Value of property | Nil | Up to Rs.50 Lakh | Up to Rs.45 Lakh |
| Loan amount | Nil | Up to Rs.35 Lakh | No upper limit |
| Maximum exemption limit | Up to Rs.2 Lakh for a self-occupied property; no limit for a rented property | Up to Rs.50,000 | Up to Rs.1.5 Lakh |
| Applicable duration/terms | Property construction should be completed within 5 years, otherwise, the deduction amount falls to Rs.30,000 | Home Loan should have been sanctioned between 1 April 2016 to 31 March 2017 | House Loan must be sanctioned between 1 April 2019 to 31 March 2022 |
What will be the Total Tax Benefit Under Section 130 and Section 22?
Both Sections 22 and 130 provide tax benefits for the interest paid on a Home Loan. You can claim the exemptions together with a maximum ceiling of Rs.2.5 Lakh, as seen in the table below:
| Section 22 | Up to Rs.2 Lakh |
| Section 130 | Up to Rs.50,000 |
| Total deduction | Up to Rs.2.5 Lakh |
It must be noted that to avail the benefits under both these Sections, you need to first utilise the available limit under Section 22 and thereafter, avail the additional tax concessions under Section 130.
Section 130 vs. 123
Section 123 of the Income Tax Act, 2025, permits tax deductions on the principal repayment of the Home Loan up to Rs.1.5 Lakh every year, while Section 130 allows exemptions on the interest paid up to Rs.50,000 per year until you pay off the Home Loan in full. Secondly, Section 123 offers tax relief on a wide array of investments ranging from small savings instruments to housing loan repayments, whereas Section 130 is exclusively meant for housing loan repayments.
How to Claim Maximum Home Loan Benefits?
To claim tax benefits on a Home Loan, it is essential to plan for the loan judiciously and avail of the best possible deal. This will keep your cost of credit within a manageable range and also help you reap optimal benefits through the applicable tax deductions, resulting in a cost-effective housing loan.
Bajaj Housing Finance offers Home Loans at competitive interest rates along with a long repayment tenure. Our easy-to-meet Home Loan eligibility criteria, minimal documentation requirements, and nominal fees and charges ensure a hassle-free homeownership experience.
Furthermore, to get a clear picture of your expected loan, use our Home Loan EMI Calculator to evaluate the monthly EMI payouts over the course of the tenure. It will also let you adjust and customise the loan to suit your requirements and finances. This way, you can estimate the right loan principal amount, tenure, and EMIs to enable comfortable repayments each month.
Also Read: Know about Tax Benefits on Second Home Loan
Section 130: FAQs
Individuals can claim a maximum amount of Rs.50,000 in the form of Section 130 deductions.
You cannot claim tax exemptions on a second house under Section 130.
Yes, you can claim advantages of both Section 22 and 130 in the same financial year together. In this regard, you may do the following:
- Initially, claim the deductions of Rs.2 Lakh for the exemptions available under Section 22.
- After you use up this limit, first-time homebuyers are entitled to secure an additional deduction for the amount of interest paid on their Home Loan under Section 130, which is restricted to Rs.50,000.
Yes, you can claim the applicable rebate of Rs.50,000 every financial year. The interest outgo on a Home Loan availed for a residential property qualifies for income tax benefits under Section 130 until complete loan repayment.
Yes, Section 130 can be claimed by individual taxpayers on properties purchased either singly or jointly. The only exceptions are Hindu Unified Families (HUF), Associations of Persons (AOP), companies, and trusts.
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