Home Loan Tax Benefits (FY 2025-2026) Explained
Disclaimer: This article is for general information/education and is not investment advice. The information is shared in good faith and for general informational purposes only. Ujjivan SFB does not make any representations or warranties regarding the accuracy, completeness, or reliability of the content.
September 28, 2026
From 1 April 2026, home loan tax benefits are governed by the Income-tax Act, 2025. Eligible principal repayments are covered under Section 123 read with Schedule XV, while the deduction for interest on borrowed capital is covered under Section 22. Sections 130 and 131 provide additional interest deductions for certain eligible first-time homebuyers with loans sanctioned during the specified periods.
However, the available home loan deduction in income tax depends on the tax regime selected, the use of the property and whether you meet the applicable conditions. Let us look at the home loan tax benefits available in FY 2026-27.
Can You Claim Home Loan Tax Benefits Under the New Tax Regime?
Under the default new tax regime, you cannot claim eligible principal repayment under Section 123 or home loan interest for a self-occupied property under Section 22.
For a let-out or rented property, eligible interest with no upper cap may be considered while calculating income from house property. However, a resulting house-property loss cannot be set off against income from another head or carried forward under the new regime.
If you opt for the old tax regime, you may claim the applicable principal and interest deductions. Compare your complete tax liability under both regimes before making a choice.
Which Provisions Cover Home Loan Tax Benefits?
| Home Loan Component | Income-tax Act, 2025 | Earlier Provision |
|---|---|---|
| Eligible principal repayment | Section 123 read with Schedule XV | Section 80C |
| Interest on borrowed capital | Section 22 | Section 24(b) |
| Additional first-time buyer deduction | Section 130 | Section 80EE |
| Affordable-housing interest deduction | Section 131 | Section 80EEA |
How Much Principal Repayment Deduction Can You Claim — Section 123 (Section 80C)?
Under the old tax regime, eligible principal repayments can be claimed under Section 123 read with Schedule XV (erstwhile Section 80C). The overall limit is ₹1.5 lakh in a tax year (financial year) and is shared with other eligible investments and payments covered by the section.
Eligible deduction may include principal repaid to a specified lender, qualifying housing-scheme instalments, stamp duty and registration fees. Stamp duty and registration charges can be claimed only in the year in which they are paid.
If you sell the property before five years from the end of the tax year in which you obtained possession, eligible deductions allowed earlier may be added to your taxable income in the year of sale.
How Much Interest Deduction Can You Claim — Section 22 (Section 24b)?
Section 22 (earlier Section 24b) covers eligible interest on capital borrowed to acquire, construct, repair, renew or reconstruct a house property.
For a self-occupied property under the old tax regime, the aggregate deduction can be up to ₹2 lakh if the loan was used for acquisition or construction, the work was completed within five years from the end of the tax year in which the capital was borrowed, and you obtain an interest certificate from the lender.
The deduction may be restricted to ₹30,000 where these conditions are not met or where the borrowing relates to eligible repair, renewal or reconstruction. The ₹2 lakh limit applies collectively across eligible self-occupied properties and is not available separately for each house.
For a let-out property, eligible interest may be deducted while calculating house-property income. The treatment of any resulting loss depends on the tax regime selected. The entire interest paid is deductible under "Income from House Property".
Please note that as per Budget 2025, two homes can be considered as self-occupied. Taxpayers no longer have to pay tax on the notional rent of a second home.
Who Can Claim the Additional First-Time Buyer Deductions?
Sections 130 and 131 are legacy deductions. They remain available only for loans sanctioned during the prescribed periods.
Newly sanctioned loans cannot qualify under these sections. You also cannot claim the same interest amount under more than one provision.
Can You Claim Tax Benefits on a Joint Home Loan?
A co-borrower does not receive a deduction automatically. You generally need to be a co-owner, a co-borrower and responsible for repaying your share of the loan. Each eligible person may claim deductions according to their ownership and repayment share, subject to the applicable limits.
Key Considerations
How Is Interest Paid Before Completion Treated?
Eligible interest payable before the property is acquired or constructed can be claimed in five equal annual instalments, starting in the tax year in which acquisition or construction is completed. For a self-occupied property, each instalment forms part of the applicable aggregate interest limit. It is not an additional deduction above ₹2 lakh.
How Should You Calculate Your Eligible Deduction?
Use the principal and interest amounts shown in your repayment statement and lender's interest certificate. The statutory limits are maximum amounts, not automatic deductions.
For example, if you repaid ₹1.20 lakh in principal and paid ₹2.40 lakh in eligible interest for a qualifying self-occupied property under the old regime, the principal claim may be up to ₹1.20 lakh, subject to the shared ₹1.5 lakh limit. The interest claim may be restricted to ₹2 lakh.
You can use a home loan EMI calculator to estimate your EMI and compare repayment scenarios. The calculator cannot determine your tax deduction, so use your actual loan records when filing your return.
Final Thoughts
Home loan tax benefits depend on the tax regime, property use, construction status, sanction date and actual repayments. From FY 2026-27, you should use the updated provisions under the Income-tax Act, 2025 while checking your eligibility.
If you are planning to purchase or construct a house, you can explore the home loan options offered by Ujjivan Small Finance Bank. Review the eligibility requirements, applicable interest rate, fees and loan terms before applying.
Disclaimer:
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