Home Loan Tax Benefits in India: A 2026 Guide for Home Buyers

Tax savings can make a home loan noticeably cheaper, but only if you know which benefits apply to you. Home loan tax benefits in India depend on three things: which tax regime you choose, whether you live in the home or let it out, and which part of your repayment you are claiming. The rules also moved into a new law from April 2026, which changed section numbers even where the limits stayed the same. Below, we explain the main deductions, how the old and new regimes differ, and what Union Budgets tend to change, so you can plan with a chartered accountant.

The Two Main Deductions

Home loan repayments have two parts, interest and principal, and each has its own treatment under the old tax regime:

Under the new tax regime, now the default, no deduction is available for interest or principal on a self-occupied home. Interest on a let-out home can still be deducted against the rental income from that home.

Section 24 Interest Deduction and the New Law

The Section 24 interest deduction is the best-known home loan benefit: up to Rs 2 lakh a year on interest for a self-occupied home under the old regime. That provision sat in the Income-tax Act, 1961, which governed returns up to the financial year 2025–26.

From 1 April 2026, the Income-tax Act, 2025 took over for the tax year 2026–27 onwards. The interest deduction has been carried into the new law under a different section number, reported as Section 22(2), with the Rs 2 lakh cap for self-occupied homes unchanged. Tax filings, forms, and professional advice will increasingly use the new numbering, so do not be surprised if your accountant refers to a different section for the same benefit.

Home Loan Tax Benefits in India: Old vs New Regime

Choosing a regime is the biggest decision. The new regime offers lower tax rates but removes most deductions, including home loan benefits on a self-occupied home. By contrast, the old regime keeps those deductions but applies higher rates. For many borrowers with a large loan in the early years, when interest makes up most of each instalment, the old regime can work out better; for others, the new regime's lower rates win. Salaried taxpayers can usually choose each year, so run both calculations annually.

Pre-Construction Interest

Interest paid before a home is completed, during construction, can be claimed under the old regime in five equal parts starting from the year of completion, within the overall Rs 2 lakh cap for a self-occupied home. For resale buyers in completed estates such as Misty Waters, this rarely applies, since the home is already finished when the loan starts.

Budget Impact on Real Estate

The budget impact on real estate usually comes through three channels. Tax changes, such as regime design, slab rates, and deduction limits, affect how much buyers can afford. Infrastructure spending, on roads, metro systems, and airports, shapes which areas grow. Housing schemes and definitions of affordable housing affect GST rates and incentives at the lower end of the market. Each Union Budget can change any of these, so check the latest announcements and your accountant's advice before relying on a particular benefit.

A Simple Illustration

Take a borrower paying Rs 3.5 lakh of interest and Rs 1 lakh of principal in a year on a self-occupied home. Under the old regime, they could deduct Rs 2 lakh of that interest and the Rs 1 lakh of principal, subject to the overall limit shared with other eligible investments, reducing taxable income by up to Rs 3 lakh. In the new regime, neither amount would be deductible, but the lower tax rates might still produce a smaller bill overall. Only a side-by-side calculation with your full income and other deductions will show which regime leaves you better off.

Joint Loans

When co-owners take a joint home loan, each co-borrower who is also a co-owner can usually claim the deductions within their own limits under the old regime, which can increase the household's total benefit. Ownership shares and repayment contributions should be clearly documented.

Putting It Together

Tax benefits reduce the effective cost of a loan but should not drive the decision on their own. Choose the right home, compare lenders, and then optimise tax. Our guide to home loans for resale homes here covers eligibility and sample instalments, and our article on the best time to buy property in Bangalore covers timing around the financial year. See current prices at Misty Waters to plan your budget.

Related reading: Home loan for a resale flat here | Best time to buy property in Bangalore | Price and configurations on the homepage | Talk to our team

FAQs

1. How much home loan interest can I deduct?
   Up to Rs 2 lakh a year on a self-occupied home under the old regime.

2. Can I claim home loan benefits in the new regime?
   Not for a self-occupied home; interest on a let-out home can be set against its rental income.

3. What happened to Section 24 in 2026?
   The Income-tax Act, 2025 replaced the 1961 Act from April 2026; the interest deduction continues under a new section number, with the same cap.

4. Can I claim stamp duty and registration?
   Under the old regime, within the overall limit for such deductions, in the year paid.

5. Should I choose the old or new regime?
   It depends on your income and loan; compare both each year with a chartered accountant.