Advantages for First-Time Homebuyers

Real estate ownership and investments always rank high on every individual’s wish list. With the thrust on affordable housing for all, shelter and housing needs have taken centre stage in recent years. As one of life’s basic necessities, house purchases consistently remain on an upswing, which is why, the Indian government incentivises housing finance by providing substantial tax relief, especially to first-time homebuyers and women house owners, making it easier to avail of a property by lowering the burden of debt.  

Here is a detailed look at the various first-time homebuyer benefits and how one may claim them. 

Who is Considered a First-Time Homebuyer?

Contrary to popular belief, a first-time homebuyer is not necessarily someone who purchases a house for the first time. Individuals who have not bought a primary property in the last three years may be termed first-time homebuyers.  

Tax Benefits Available for First Homebuyers 

If you wish to avail of housing finance for buying a new house, you can enjoy a number of tax benefits on Home Loans under the Income Tax Act, 2025. Eligible loan borrowers may claim these concessions on the principal and interest components of their loan at the time of filing their income tax returns during each financial year. Given below are some of the provisions that permit combined tax savings up to Rs.5 Lakh annually under Section 123, Section 22, Section 130 and Section 131:

Deduction of Principal Amount Under Section 123

Borrowers are entitled to tax relaxations up to Rs.1.5 Lakh on the principal repayment of their house loans.  

Tax Deduction on Interest Paid Under Section 22

Housing loan interest paid up to Rs.2 Lakh is deductible from the gross total income while calculating income from self-occupied house properties. This is applicable in cases where the acquisition or construction of the house has been completed within five years of originally taking the loan.

Extra Tax Relief Under Section 131 and Section 130

First-time homeowners under the affordable housing category can claim additional deductions under Section 130 and Section 131 of Rs.50,000 and Rs.1.5 Lakh, respectively, on the interest portion of their loan EMI repayment, subject to fulfilling certain conditions. However, you can obtain exemptions only under one of the two sections, depending on when the loan was sanctioned.

Below is a comparison of the basic difference between the two sections: 

Tax Concession for Non-Receipt of House Rent Allowance (HRA) 

Individuals who buy a house for the first time can secure rebates under Section 134 if they are not entitled to HRA from their employers. This provides relief on expenses exceeding 10% of total income towards their rent payment.  

Deduction on GST 

A 12% subsidy, previously levied on houses acquired under the Pradhan Mantri Awas Yojana, has been reduced to 8% since 2018. This means that first-time homeowners with average earnings of Rs.18 Lakh can enjoy benefits up to Rs.2.7 Lakh instead of the earlier sum of Rs.2.5 Lakh.  

Deduction on Subsidy Slabs 

As part of the Pradhan Mantri Awas Yojana subsidies, home buyers with an annual income of Rs. 12 Lakh can claim a 4% subsidy on principal amounts of Rs.9 Lakh. Besides that, a 3% subsidy is extended on Rs.12 Lakh principal sum for a salary of Rs.18 Lakh per year.   

Pradhan Mantri Awas Yojana (PMAY) 

First-time home buyers belonging to the Economically Weaker Sections (EWS), Lower Income Groups (LIG) and Middle-Income Groups (MIG) can claim the following tax concessions on Home Loans under PMAY: 

Smart Advice To Help You Plan Your First Home Purchase 

Purchasing your first home involves judicious planning and utilisation of the available funds. When looking for the ideal home, one usually considers these crucial aspects: 

• Location and neighbourhood 
• Property price 
• Construction quality 
• Amenities, conveniences and infrastructure  
• Facilities, connectivity, etc. 

Selecting the right property is just one facet of your home-buying plans. Below is a quick guide on several other considerations: 

Arranging the Requisite Funds 

Your financial profile should always strike a balance between your savings and the debts you undertake. While paying for the house with your own investments and monetary resources is the ideal option, diluting all your savings is never a good idea. Besides, one needs to ensure sufficient liquidity for adverse situations.  

Opting for a Home Loan   

In case you find it difficult to manage the entire property purchase on your own, you may opt for housing finance. But before you take up a Home Loan, get a fair estimate of how much loan you might be eligible for and whether you can make the repayments comfortably.    

Home Loan Eligibility 

While examining loan eligibility, lending institutions will closely evaluate multiple aspects, each of which might act as a deciding factor on its own. These include: 

• Credit score and repayment history 
• Age of the applicant 
• Business/job profile 
• Monthly income  
• Existing liabilities 
• Property details, etc. 

If your credit score is low, lenders will be wary of offering you a loan. However, a good credit record and excellent CIBIL scores of 750 or higher will establish you as a responsible borrower who can repay loans on time, thereby fetching you attractive deals at competitive interest rates.  

Similarly, younger loan applicants are far likelier to receive preferential loan offerings as compared to older applicants who may be nearing the end of their service years. Other parameters are also carefully appraised to verify your personal, professional and credit profile to assure lenders of your repayment abilities within the stipulated tenure. 

Property Value  

As per the Reserve Bank of India norms, you can secure a specific proportion of the property’s current market price as a loan, better known as loan-to-value ratio (LTV). The RBI-mandated LTV restrictions for determining principal amounts are as follows: 

• When you apply for a loan of Rs.30 Lakh, you can receive approvals up to 90% of the property’s value 
• Borrowers can expect housing finance up to 80% if they seek loan principals in the range of Rs.30 Lakh to Rs.75 Lakh 
• For loan amounts higher than Rs.75 Lakh, the expected LTV is 75% 

Note: Keeping in mind the risks associated with credit transactions, lenders may reduce the LTV.  

Summing Up    

As a first-time homebuyer, research your property options in line with your loan eligibility and requirement to maximise the loan benefits. See if you qualify for any government housing schemes. If you wish to avail of a Home Loan, remember to first scout around for lenders offering the lowest Home Loan interest rates. Access a Home Loan EMI calculator to compare the interest rates of other lenders for choosing the best deal. Confirm if there are other related costs and factor them into your calculations. This way, you can establish the overall cost of your credit and its viability.