Home loan tax benefits

A home loan can take three things off your income tax: the interest you pay, the principal you repay, and the stamp duty and registration fee on the purchase. Since 1 April 2026 all three sit in a new law, the Income-tax Act, 2025, which replaced the 1961 Act. The rules are much as they were, under new section numbers, with one correction made by the Finance Act, 2026.

Whether you get any of it depends on a choice you make every year: the tax regime. The new regime, now the default, has lower rates and allows none of these deductions on a home you live in. The old regime allows them, at higher rates. So the question is also whether they are worth leaving the new regime for.

This guide takes each deduction in turn and works it through on one loan: the ₹57.62 lakh from our affordability guide, at 8.5% over 20 years, with an EMI of ₹50,000.

Two regimes, one choice

Under section 202 of the 2025 Act, an individual’s tax is worked out at the new regime’s rates unless they opt out. Those rates start at nil up to ₹4 lakh and rise in steps of five points to 30% above ₹24 lakh. A rebate means no tax at all on income of up to ₹12 lakh for a resident, and salaried people get a standard deduction of ₹75,000.

The price of those rates is a list of deductions the new regime does not allow. Three matter to a home buyer: interest on a home you live in; all of Chapter VIII of the Act, which holds the ₹1.5 lakh deduction for principal and stamp duty; and setting off a loss from house property against your salary or other income. A home you live in has no income of its own, so anything it deducts can only make a loss, and in the new regime nothing about it reaches your tax.

The old regime is still there, and you reach it by opting out. With no business income, you choose in your tax return each year and can switch back; with business income, the choice carries forward and can be withdrawn only once. Its rates are nil up to ₹2.5 lakh, 5% to ₹5 lakh, 20% to ₹10 lakh and 30% above, with a ₹50,000 standard deduction on salary. Both regimes add a 4% cess. None of the deductions below is limited to residents, so non-resident owners can claim them too.

That ₹3.5 lakh comes off your taxable income, not your tax. At the old regime’s top rate of 30% plus cess it is worth ₹1.09 lakh a year at most, and whether that beats the new regime’s lower rates is worked out in which regime comes out ahead.

Interest on a home you live in

A home you live in earns no rent, so the Act gives it an annual value of nil. The same applies if you cannot live in it for any reason, for example because work keeps you in another city. You can treat up to two homes this way. The interest on the loan is deducted from that nil, and the result is a loss from house property, which the old regime sets off against your salary.

The deduction is in section 22, which replaced section 24(b). It covers interest on money borrowed to buy, build, repair, renew or rebuild the home, and for a home you live in it is capped:

• ₹2 lakh a year if you borrowed to buy or build it, the purchase or construction was completed within five years from the end of the tax year you borrowed in, and you have a certificate of the interest from your lender.
• ₹30,000 a year in any other case: a loan for repairs or renovation, or a purchase or construction that took longer than five years.

The ₹2 lakh is shared between two homes you live in, and interest above it is simply not deducted; nothing carries over to a later year.

On the worked example the cap bites hard. The first year’s EMIs carry ₹4.85 lakh of interest, more than twice the cap. Interest falls as the loan is repaid, but it stays above ₹2 lakh for fifteen of the twenty years.

Over the loan, that is ₹35.63 lakh of deductions out of ₹62.38 lakh of interest. In the old regime’s 30% slab, each ₹2 lakh year saves ₹62,400 of tax, 30% plus the 4% cess; stay in that slab and the deduction is worth ₹11.12 lakh over twenty years.

The cap also changes the sums on prepaying. While a year’s interest stays above ₹2 lakh, a part-prepayment costs you no deduction, because you were claiming only ₹2 lakh anyway. A floating-rate home loan carries no prepayment charge, as our home-loan guide explains.

Interest before completion

On a flat bought under construction you pay pre-EMI long before you move in, and none of it can be claimed in the years you pay it. Instead, the interest for the tax years before the one in which the purchase or construction is completed is added up and claimed in five equal parts: one in that year and one in each of the next four. Interest paid during the completion year counts as that year’s interest.

For a home you live in, those fifths sit inside the ₹2 lakh cap, not on top of it. That was the rule under the 1961 Act. The 2025 Act, as first passed, left them outside the cap; the Finance Act, 2026 put them back inside with effect from 1 April 2026, the day the new Act took effect, so the looser wording never applied to any tax year.

On a large loan that leaves the fifths worth little. The home-loan guide’s example pays ₹8.29 lakh of pre-EMI on a ₹75 lakh loan: a fifth of ₹1.66 lakh, even if all of it fell before completion. But the first full year of EMIs on that loan carries ₹6.32 lakh of interest, over three times the cap, so for a home you live in the fifths add nothing in any of their five years. They count on a smaller loan, and on a home you let out, where interest has no cap.

The five-year deadline

The ₹2 lakh cap needs the purchase or construction completed within five years from the end of the tax year in which you borrowed. Borrow in October 2026, in the tax year that ends on 31 March 2027, and the flat has to be complete by 31 March 2032. Miss that, and the cap on a home you live in drops to ₹30,000 a year, for good.

That puts the builder’s schedule inside your tax planning: a project that slips can cost you most of the deduction as well as extra rent. Set the possession date filed with RERA, and how much of the building is actually up, against your own deadline; our guide to what a possession date means shows how to read both.

Principal, stamp duty and fees

The principal part of each EMI comes under section 123, which replaced section 80C. It allows up to ₹1.5 lakh a year for a list of payments set out in Schedule XV of the Act, to individuals and Hindu undivided families, in the old regime only. For a home, the Schedule counts:

• Principal repaid to a recognised lender: a bank, including a co-operative bank; LIC; the National Housing Bank; a housing finance company; the government; or certain public-sector employers. Principal repaid to a relative or a friend does not count.
• Stamp duty, the registration fee and other expenses of transferring the home to you, in the tax year you pay them.
• Instalments to a development authority or housing board, or to a housing society you belong to, towards a home allotted to you.

It does not count interest, which has its own deduction, a society’s admission fee, or alterations and repairs made after completion or once the home is occupied or let. The home can be one you live in or one you let out.

Two things limit what it is worth. First, the ₹1.5 lakh is shared with provident fund contributions, life insurance premiums, children’s tuition fees, five-year tax-saving deposits and more; if those already fill it, the principal adds nothing.

The second is size. On the worked example, the first year’s EMIs repay ₹1.15 lakh of principal, and from the sixth year the principal alone is more than ₹1.5 lakh. Stamp duty and registration on the affordability guide’s ₹74 lakh flat come to about ₹5.62 lakh at the 7.6% Bengaluru rate, all paid in the year you register, yet only ₹1.5 lakh of it can count, and only if nothing else has used the limit. At 30% plus cess, a full ₹1.5 lakh saves ₹46,800 of tax.

Timing matters too. The Schedule counts payments for a home whose income is taxable as house property, or would be if you did not live in it, and a flat still being built is not yet that. Principal you repay before completion, for example on full EMIs from the first release, cannot be claimed, and unlike pre-construction interest there is no provision to claim it later.

Selling within five years

This deduction comes with a lock-in. If you sell the home before five years from the end of the tax year in which you took possession, everything you claimed for it under this head in earlier years is added back to your income in the year of the sale, and nothing is allowed that year. The same happens if any of the money comes back to you, for example as a refund. Take possession in August 2027, in the tax year ending 31 March 2028, and a sale before 31 March 2033 reverses the deduction.

Only the principal and stamp-duty deduction is reversed; interest deducted under section 22 stays deducted. Claims made under the old section 80C before April 2026 carry the same condition into the new Act.

Joint owners and co-borrowers

When a home is owned jointly in definite shares, section 24 taxes each owner separately on their share, and gives each of them the nil value for a home they live in, as if they owned it alone. The caps follow the person, not the property. Two co-owners who both pay the loan can each deduct up to ₹2 lakh of interest, and each can use their own ₹1.5 lakh limit. Our guide to buying a flat jointly covers the ownership side.

To claim, you need to be both an owner and a borrower. The interest comes off income from the house, which is taxed on its owners, so a co-borrower not named on the sale deed has nothing to deduct it from. The principal deduction counts only repayment of an amount “borrowed by the assessee”, so an owner who is not on the loan cannot claim it. Write the shares into the sale deed, take the loan jointly, and pay your shares of the EMI from your own accounts.

On the worked example, two co-owners with equal shares, both on the loan and each paying half the EMI, split the first year’s ₹4.85 lakh of interest into ₹2.43 lakh each. Each claims ₹2 lakh: ₹4 lakh between them, twice what one owner could claim. Their halves stay above the cap only until the seventh year, so from the eighth they deduct all of the interest.

The extra ₹23.25 lakh of deductions is worth about ₹7.25 lakh of tax if both owners stay in the old regime’s 30% slab. But each owner chooses a regime for themselves, and a co-owner in the new regime gets nothing for their half, so run the comparison below for each of you.

A home you let out

A home you let out is taxed on its rent. Its annual value is the higher of the rent you receive and the rent it could reasonably fetch, less the property tax you paid in the year. From that the Act takes a flat 30%, and then the interest on the loan in full: the ₹2 lakh cap applies only to a home you live in. Pre-construction interest comes off in its five fifths, in full as well. Our guide to letting out your flat covers the agreement, the stamp duty and the rest.

If the interest is more than what is left of the rent, the result is a loss, and here the regimes part ways. The old regime sets off up to ₹2 lakh of it against your salary or other income in the same year, and carries the rest forward for up to eight tax years, against house-property income only. The new regime still takes the interest off the rent, but the loss cannot be set off against other income, and the Act treats it as used up, so it is not carried forward.

Suppose the worked example’s flat is let for ₹25,000 a month, an illustrative figure, and leave property tax aside. The annual value is ₹3 lakh; 30% of that is ₹90,000, which leaves ₹2.1 lakh. The first year’s interest of ₹4.85 lakh turns that into a loss of ₹2.75 lakh. In the old regime, ₹2 lakh comes off your salary this year, worth ₹62,400 in the 30% slab, and ₹75,000 waits for future rent. In the new regime the rent is taxed at nil, which is worth something, but the ₹2.75 lakh loss goes no further.

Principal on a let-out home counts towards the ₹1.5 lakh in the old regime too. And only two homes can have a nil value; any others are taxed on the rent they could fetch, let or not.

Which regime comes out ahead

Every saving so far is a saving against the old regime’s own rates. The new regime has lower rates and a larger standard deduction, so the fair test is your total tax under each. The sheet does that for a salaried buyer whose only old-regime deductions are the home loan’s full ₹3.5 lakh: ₹2 lakh of interest and ₹1.5 lakh under section 123.

At every one of these salaries, the home loan on its own does not make the old regime worth choosing. At ₹12 lakh the new regime charges nothing. From ₹25 lakh upwards both regimes are in their 30% slab and the gap stops moving: the old regime costs ₹1.40 lakh more, and needs ₹8 lakh of deductions in all, ₹4.5 lakh more than the home loan gives, before it comes out ahead.

The home loan can still tip the balance if you already claim other deductions that only the old regime allows. Work out your tax both ways each year before you file; with no business income you can switch every year, so the answer can change as your loan and your salary do.

Every deduction on one sheet

Every home-loan deduction in the 2025 Act, with its limit, where it sits, the section it replaced and the regime that allows it.

The first-time buyer deductions

Two deductions once gave first-time buyers interest relief on top of the ₹2 lakh: sections 80EE and 80EEA of the old Act. They have not been repealed. The 2025 Act carries them forward as sections 130 and 131, but only for loans sanctioned in windows that have closed:

• Section 130, up to ₹50,000 a year, for a loan of up to ₹35 lakh sanctioned between 1 April 2016 and 31 March 2017, on a home worth up to ₹50 lakh, by a buyer who owned no other home on the date of sanction.
• Section 131, up to ₹1.5 lakh a year, for a loan sanctioned between 1 April 2019 and 31 March 2022, on a home with a stamp duty value of up to ₹45 lakh, by a buyer who owned no other home on the date of sanction and could not claim under section 130.

If your loan qualified then, you can still claim, in the old regime, though never for interest you have already deducted elsewhere. No loan sanctioned today qualifies. For lower-income households, the central government’s PMAY-Urban 2.0 scheme pays part of the interest into the loan account instead of reducing tax; the home-loan guide sets out who qualifies.

Before you file

• Work out your tax both ways each year, on your full income, before you choose a regime.
• Get your lender’s certificate of interest and principal for each tax year; the ₹2 lakh cap depends on it.
• Keep the stamp duty and registration receipts, and claim them in the tax year you paid them.
• Note your five-year deadline, from the end of the tax year you borrowed in, against the builder’s filed possession date.
• Keep a record of pre-construction interest by tax year, so you can claim the fifths from the year of completion.
• Be on both the deed and the loan, with your shares written in, if you and a co-owner both want to claim.
• Hold for five years after the end of the tax year of possession, or price the reversal into any early sale.
• Ask a chartered accountant if you have business income, more than two homes, a let-out home making a loss, or a loan from anyone other than a bank or housing finance company.