Let us say that you take a home loan to finance an apartment in Chennai having monthly EMI of Rs.42,000/-. This EMI of Rs.42,000/- gets split into interest component and principal component with interest component higher in the initial years. As per the bank loan statement, in the first year, the interest component will work out to approx Rs.30,000/- per month or Rs.3.60 lakhs per annum. This can be claimed up to Rs.2 lakhs per annum under Section 24. The principal component works out to Rs.12,000/- per month or Rs.1,44,000/- per year which can be claimed as a deduction under Section 80C (limit of Rs.1.50 lakhs). But, that is not all.

Additionally, the registration charges and stamp duty paid for the property are also eligible for deduction under Section 80C. The way you should time the purchase is that the house registration is done in the Jan-Mar quarter so that you can claim full deduction of registration and stamp duty subject to Section 80C limit and only in the financial year in which it is incurred. Then he can claim the full principal from next year. If you are planning to invest in PPF, he can postpone that by 2-3 years since Section 80C will be fully covered by the principal component of home loan itself. There is one more thing to remember here. The treatment of principal on home loan remains the same irrespective of whether the property is self-occupied or rented out. If the property is sold before a period of 5 years then the Section 80C benefits claimed over the last 5 years will be treated as taxable income in the hands of the assessee in the year in which the said property is sold out.