Home loan tax benefits in 2026: interest and principal deductions, old vs new regime
How home loan interest and principal are treated for tax in 2026, the ₹2 lakh and ₹1.5 lakh limits, the new regime, the Income-tax Act 2025 and a worked example.
In 2026, a home loan still gives two main tax benefits, but only if you choose the old tax regime: a deduction for interest on a self-occupied house of up to ₹2 lakh a year, and a deduction for principal repaid within the overall ₹1.5 lakh limit for specified investments and payments, which also covers stamp duty and registration in the year you pay them. The new tax regime, which is the default, gives no deduction for interest on a self-occupied home, though interest on a let-out property can still be set against its rent. From 1 April 2026 the Income-tax Act, 2025 replaced the Income-tax Act, 1961; the home loan benefits were carried over, but the section numbers changed. Many people, lenders' certificates and older guides still use the familiar references "section 24(b)" and "section 80C", and this guide uses them as labels with that caveat.
This guide is part of the overview of home loan interest rates. Tax figures are illustrative; for your return, check the Income Tax Department and consider a chartered accountant.
The benefits at a glance (old regime)
| Benefit | Familiar reference (1961 Act) | Limit | Conditions |
|---|---|---|---|
| Interest on self-occupied house | Section 24(b) | ₹2,00,000 a year, combined for up to two self-occupied houses | Loan for purchase or construction; acquisition or construction completed within five years from the end of the financial year in which the loan was taken, otherwise the limit falls to ₹30,000 |
| Interest on let-out house | Section 24(b) | Full interest against rent; the resulting loss can be set off against other income up to ₹2,00,000, with the rest carried forward | Rent declared as income |
| Pre-construction interest | Section 24(b) | Deducted in five equal yearly parts from the year construction is completed, within the overall limit | Interest paid before possession |
| Principal repayment | Section 80C | Within the overall ₹1,50,000 limit shared with PF, PPF, life insurance and others | Deduction reversed if the house is sold within five years from the end of the year of possession |
| Stamp duty and registration | Section 80C | Within the same ₹1,50,000 limit | Claimed in the year paid |
| Loan for repairs or renovation | Section 24(b) | ₹30,000 within the interest limit for self-occupied property | Interest only, not principal |
The owner can treat up to two houses as self-occupied with nil annual value (allowed since 2019-20; the Budget for 2025 removed the earlier conditions for doing so), but the ₹2 lakh interest limit is a combined limit for both, not ₹2 lakh each.
What changes under the new regime
| Item | New regime treatment |
|---|---|
| Interest on self-occupied house | Not deductible |
| Interest on let-out house | Deductible against the rent from that property |
| Loss from house property | Cannot be set off against salary or other income, and cannot be carried forward |
| Principal and stamp duty | Not deductible |
The new regime has lower slab rates and a higher rebate threshold. For many salaried taxpayers with moderate deductions, it is the better choice even with a home loan. Salaried employees can generally choose the regime each year when filing; people with business income face stricter rules on switching back and forth. Check the current rules on the Income Tax Department site.
Worked example: is the old regime worth it with a home loan?
Illustrative borrower: ₹50 lakh loan at 8.5% for 20 years, EMI about ₹43,391, self-occupied flat, taxpayer in the 30% slab plus 4% cess (31.2% marginal rate), no surcharge.
Year 1 of the loan:
- Interest paid: about ₹4,21,182. Deductible amount: ₹2,00,000 (capped)
- Principal repaid: about ₹99,511. Suppose there is ₹99,511 of room left in the ₹1.5 lakh limit after PF contributions
- Tax saved on interest: ₹2,00,000 × 31.2% = ₹62,400
- Tax saved on principal: ₹99,511 × 31.2% = about ₹31,047
- Total home loan tax benefit: about ₹93,447 for the year
This does not prove the old regime is better. You need to compute your whole tax under both regimes, including other deductions such as HRA (which you usually lose once you live in your own flat), standard deduction and the slab differences. Use the tax calculator on the Income Tax Department portal or ask a chartered accountant. The interest above ₹2 lakh (₹2,21,182 in this example) gives no benefit for a self-occupied house.
Joint home loans: two deductions
If two people are co-owners and co-borrowers and both pay the EMI from their own funds, each can claim deductions on their share, each up to the limits. On an illustrative ₹1 crore loan at 8.5% over 20 years, year-1 interest is about ₹8,42,365. If two spouses share it equally, each pays about ₹4,21,182 and each can claim ₹2,00,000 under the old regime, so ₹4,00,000 in total instead of ₹2,00,000 for a single borrower. Ownership share, loan share and actual payment should line up. See joint home loans with a co-applicant.
Documents you need
- Provisional and final interest certificates from the lender, showing interest and principal for the financial year
- Possession or completion certificate date, for pre-construction interest and the five-year condition
- Sale deed or allotment letter showing ownership
- For let-out property, the rent agreement and rent received
- Your employer needs the provisional certificate and a declaration to reduce TDS on salary under the old regime
Points that cause trouble
- Claiming interest on an under-construction flat before possession. The pre-construction interest is claimed in five parts only from the year construction completes.
- Co-borrower who is not a co-owner. Generally cannot claim the deductions.
- Assuming the first-time buyer deductions still apply. The extra interest deductions for first-time buyers under the old sections 80EE and 80EEA were limited to loans sanctioned within specific past windows. If you have such a loan, ask a chartered accountant whether a continuing claim is available under the new Act.
- Using old section numbers in the new Act. For tax years from 2026-27, the Income-tax Act, 2025 has its own numbering. The utility forms on the e-filing portal map the deductions; follow those rather than old references.
Frequently asked questions
Can I claim both HRA and home loan interest?
It can be possible if you live in a rented house in a different city from your own property, or in some other genuine situations, under the old regime. Claims are examined closely, so keep evidence and take professional advice.
Is the processing fee deductible?
Processing charges on a loan for purchase or construction have often been treated as part of interest within the limit. Treatment depends on facts; confirm with a chartered accountant.
Does a top-up loan qualify?
Only if the money is actually used for purchase, construction, repair or renovation of the house and you can show it. A top-up spent on other purposes does not qualify.
Did the Income-tax Act, 2025 change the ₹2 lakh limit?
The new Act was intended to simplify the language without changing most benefits, and the home loan deductions were carried over. Budgets can still change limits, so check the current figures on the Income Tax Department site before filing.
Sources
- Income Tax Department — e-filing portal, tax calculator and guidance on house property income
- Central Board of Direct Taxes — Acts, rules and notifications, including the Income-tax Act, 2025
- India Code — official text of central Acts
