Both principal as well as interest of home loans attract tax benefits. Effective from 1st April 2005 (i.e. assessment year 2005-07) under section 80C of the Income Tax Act 1965:

	Principal amount of repayment of loan along with other savings such as PF, PPF and Life Insurance premium etc., up to a maximum of Rs 1,00,000 will be eligible for deduction from gross income.
	Interest paid on loan after completion of construction will be deducted from income from property.
		For self occupied – Income will be treated as nil and interest payment will be treated as minus income which will be adjusted against other income.
		For rental property – It will be adjusted against rental income.
	Interest paid on loan before completion of construction will be allowed as deduction from income at 20% per year for the next five years.

Tax Incentives on Home Loans
Some of the tax benefits which make home loans more appealing and definitely not a burden are:

Tax Benefits Available
Tax benefits are charged on the principal and the interest payments you make at the time you take the loan. A tax rebate of 20% (under Section 88 of the Income-Tax Act) on the principal repaid, subject to a principal ceiling of Rs. 20,000 per year, is available. To you it would mean a tax rebate of Rs.20,000 x 20% - which is Rs.4,000.

Rs.4,000 a year? That's it?
Yes. But do remember that this amount is only against the principal payments made. Most of the home loans earlier were of higher interest receipts as the EMI contained greater proportion of interest payable and minimum of principal. So, if you've taken a smaller loan you won't enjoy the benefit because the principal portion increases as the loan ages.

Tax Benefits on Interest Payments
As per the Income-Tax Act 1961, tax concessions are available on both the principal and interest components of the loan. The last budget has in fact enhanced these benefits, making a home loan even more attractive. The upper limit of the amount of deduction of interest repayment allowed from your gross total income is now Rs. 1,50,000 p.a. (up from Rs. 1,00,000 p.a. last year). At the highest tax slab, this translates into a saving of Rs. 51,750 (Rs. 1,50,000 x 34.5%). However, condition remains that the loan should have been taken on or after April 1st, 1999 and that the house should be completed by 31st March, 2003.

Besides, Sec. 88 offers you tax benefits for principal repayments. The principal repayment amount included in the overall limit of Rs. 60,000 offered by this section is Rs. 20,000.