Thinking of buying a flat this year-end but worried that tax will eat into your savings? Here’s something to know. Home loan tax benefits are still bringing relief to homebuyers in FY2026-27. But you only get them if you choose the right tax regime, and many buyers miss this. There’s one more change this year. The new Income-tax Act, 2025 applies from 1st April 2026, so the familiar section numbers have changed. This Star Estate guide covers section 80C home loan rules, the section 24b deduction, and what both now look like for Indian and NRI buyers.
Home Loan Tax Benefits FY2026-27: What You Can Claim and Which Regime Wins
Claim up to ₹1.5 lakh on principal and ₹2 lakh on interest, but only under the old regime.
For an under-construction flat, pre-possession interest is claimed in five equal instalments after possession.
Joint borrowers who co-own the property can each claim, doubling the family limit.
A second home gets the same deductions, but the ₹2 lakh interest cap does not double.
Compare tax under both regimes, as the new regime often wins at higher salaries.
Under the old tax regime, the tax benefit on home loan principal is up to ₹1.5 lakh a year, and the home loan income tax deduction on interest is up to ₹2 lakh a year for a self-occupied home. The new regime, now the default, allows neither. Compare both regimes before you file your taxes.
Two deductions do most of the work: one on the principal you repay, one on the interest you pay. Both are available only under the old regime.
Your EMI has two parts: principal and interest. The principal part qualifies for a deduction of up to ₹1,50,000 a year, which is the main tax benefit on home loan principal. Under the new Act, the section 80C home loan deduction sits in section 123 (earlier, section 80C).
That ₹1.5 lakh limit is shared. EPF, PPF, ELSS, life insurance premiums, and children’s tuition fees all count towards it. So if your PF already uses up most of it, the home loan adds little.
Stamp duty and registration charges also count towards this limit, but only in the year you pay them.
Limit: ₹1.5 lakh a year, shared with other eligible investments
Includes: Principal repayment, stamp duty, and registration charges
Watch out: If you sell within five years of possession, the deduction is reversed
Interest is where the real savings are. For a self-occupied home, the section 24b deduction lets you deduct up to ₹2,00,000 a year. This now sits in section 22 of the new Act (earlier, section 24(b)).
The cap drops to ₹30,000 if construction isn’t finished within five years of the loan. It also drops if the loan was for repairs or renovation.
For a let-out home, the full interest is deductible. But you can set off only ₹2 lakh of the resulting loss against your salary or other income each year.
Keep your bank’s annual interest certificate handy. You’ll need it at the time of filing your income tax return.
Yes, but not straight away. You can’t claim the interest you pay during construction year by year. It waits until the builder hands over possession.
Once you get possession, add up all the interest paid before completion. You can claim it in five equal instalments, starting in the year of possession. This is the pre-construction interest rule, now in section 22(1)(c) of the new Act.
That pre-construction instalment counts towards the same ₹2 lakh yearly cap as your regular interest. So the total limit doesn’t grow.
Finish within five years: Construction must be completed within five years of the loan year to keep the ₹2 lakh cap.
Get the certificate: The lender’s interest certificate must show pre- and post-possession interest.
Check RERA dates: A RERA-registered project gives you a committed possession timeline, which helps you plan.
Buying with your spouse, sibling, or parent? A joint loan can double your savings. Each co-borrower claims their own deductions, so the family limit becomes ₹4 lakh on interest and ₹3 lakh on principal for two people.
But there are two conditions. Each person must be a co-owner on the property title. And each must actually pay part of the EMI from their own account.
Co-owner on the sale deed: A co-borrower who isn’t an owner can’t claim tax deduction
Own EMI contribution: Pay your share from your own bank account
Share it sensibly: The split should match ownership, so keep a record
A good tip for couples is to match the EMI split with each person’s tax bracket. The higher earner benefits more from the deduction.
NRIs can claim these deductions too, under the old regime. If you’re an NRI buying a flat in India with a resident family member as a co-borrower, you each claim your own share.
Yes. Your second home gets the same principal and interest deductions, but the limits don’t double. How it works depends on whether it is for end use or for rental purposes.
You can treat up to two houses as self-occupied, with nil annual value. Your total interest deduction across both homes stays capped at ₹2 lakh a year. This is in section 21(7) of the new Act.
The full interest is deductible against rent, after a 30% standard deduction. But you can set off only ₹2 lakh of any loss against other income in a year. The rest carries forward for up to eight years.
This is also where the new regime hurts. It doesn’t allow house property loss set-off at all.
For investors weighing a second flat in India for stable rent or end-use, these rules shape real return. Check the EMI calculator before you commit.
The tax benefit on home loan principal isn’t automatic. You qualify only if you meet every condition below.
Old regime: You must opt for the old tax regime when you file income tax
Eligible lender: The loan must come from a bank, housing finance company, or other listed institution
Ownership: The property must be in your name, alone or jointly
Actual payment: You can claim only what you’ve paid in that financial year
No quick sale: Don’t sell within five years of getting possession
Borrowing from friends or relatives doesn’t qualify for the principal deduction. And you can’t claim for a property you haven’t yet bought.
Two older schemes, section 80EE and 80EEA (now sections 130 and 131), gave first-time buyers extra interest deductions. They are closed to new loans. Only borrowers sanctioned in the earlier windows can still claim.
The simplest way is to run your tax twice, once under each regime, and pick the lower number. Here’s a worked example : ₹40 lakh loan, 8.5% interest, 20 years, ₹18 lakh salary, self-occupied home.
Surprised? At this salary, the new regime wins, even with no home loan deductions. The old regime only pays off when your deductions are large enough to beat the lower new-regime slabs.
So the steps are simple:
Add your interest (up to ₹2 lakh) and principal (up to ₹1.5 lakh, with your other 80C items)
Add your other old-regime deductions, such as HRA and health insurance.
Compute tax under both regimes.
Choose the lower one.
Figures are illustrative and vary by income. Please confirm with a chartered accountant, and try our EMI calculator to plan your monthly outgoing.