Home Loan Tax Benefits FY 2026-27: Interest and Principal

A home loan gives two main tax benefits in India under the old tax regime: up to ₹2 lakh a year deduction for interest on a self-occupied house (old Section 24(b), now Section 22 of the Income-tax Act, 2025) and up to ₹1.5 lakh for principal repayment within the old Section 80C limit (now Section 123). Under the default new regime, neither benefit is available for a self-occupied house; only interest on a let-out property can be deducted against its rent.

The new section numbers

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, so FY 2026-27 is the first year under the new numbering. The limits did not change.

The extra deductions under old Sections 80EE and 80EEA applied only to loans sanctioned within specific windows that closed in March 2017 and March 2022 respectively, so they are not available to new borrowers.

Interest deduction: old Section 24(b), now Section 22

Self-occupied house (old regime): Interest up to ₹2 lakh a year, provided the house is bought or constructed within five years from the end of the financial year in which the loan was taken. If construction takes longer, or if the loan is only for repairs or renovation, the cap drops to ₹30,000. You can treat up to two houses as self-occupied, but the ₹2 lakh cap applies to them together.

Let-out house: The full interest is deductible against rental income, after the 30% standard deduction on annual value. If this creates a loss:

• Old regime: the loss can be set off against salary and other income up to ₹2 lakh a year; the balance carries forward for up to eight years against house property income.
• New regime: the loss can neither be set off against other income nor carried forward.

Pre-construction interest: Interest paid before the year the house is completed is deducted in five equal instalments starting from the year of completion. For a self-occupied house, these instalments count within the same ₹2 lakh cap.

Principal deduction: old Section 80C, now Section 123

Principal repaid during the year qualifies within the overall ₹1.5 lakh limit that also covers PPF, ELSS, EPF, life insurance and other items. Conditions:

• The loan must be for buying or constructing a residential house (not repairs or a plot alone).
• The claim starts only after construction is completed and you get possession.
• Stamp duty and registration charges are also deductible in the year you pay them, within the same ₹1.5 lakh.
• If you sell the house within five years from the end of the financial year of possession, all principal deductions claimed are reversed and taxed in the year of sale.

Many salaried people already fill the ₹1.5 lakh limit through EPF. See tax saving options under 80C before counting on this benefit.

Worked example: tax saved in the old regime

Ravi is a salaried employee in the 30% slab in the old regime. In FY 2026-27 he pays EMIs on a self-occupied flat:

• Interest paid: ₹2,60,000
• Principal paid: ₹1,20,000
• His EPF contribution is ₹30,000, so ₹1,20,000 of the ₹1.5 lakh 80C/Section 123 limit is free.

The ₹60,000 of interest above the cap gives no benefit for a self-occupied house. If Ravi had a surcharge-level income the saving would be slightly higher; if he were in a lower slab it would be proportionately less. Check how this changes your total tax with our income tax calculator.

Joint home loan: double the benefit

If a house is co-owned and the loan is taken jointly, each co-owner who is also a co-borrower and pays the EMI can claim:

• Up to ₹2 lakh interest (self-occupied), and
• Up to ₹1.5 lakh principal within their own Section 123 limit.

Claims should follow ownership share and actual contribution. A co-borrower who is not a co-owner cannot claim. For couples with large interest outgo, this can nearly double the household's deduction. Our guide to co-applicant and guarantor liability explains the obligations that come with a joint loan.

Old regime vs new regime for home loan borrowers

The new regime (old Section 115BAC, now Section 202) has lower slabs, a ₹75,000 standard deduction and a rebate that makes income up to ₹12 lakh tax-free, but it removes home loan deductions for self-occupied houses.

A rough rule: the old regime starts to win when your total deductions — standard deduction ₹50,000, home loan interest up to ₹2 lakh, Section 123 up to ₹1.5 lakh, health insurance and others — are large enough to offset the new regime's lower slabs. For many salaried borrowers earning ₹15-25 lakh with the full ₹2 lakh interest and ₹1.5 lakh principal claims, the old regime is often still cheaper; at lower incomes the new regime usually wins. Run both in a calculator rather than guessing. Read new vs old tax regime for a full break-even.

How to claim

1. Salaried: Submit the lender's provisional interest certificate to your employer early in the year (and the final certificate by January-February) so TDS reflects the deduction. Choose the old regime with your employer if it suits you.
2. When filing your return: Report interest under income from house property and principal under Section 123. Salaried individuals can switch regimes each year when filing; those with business income have stricter limits on switching.
3. Keep records: loan sanction letter, interest certificate, possession or completion certificate, sale deed and stamp duty receipts.

Other points to know

• Balance transfer: Interest on a new loan taken to repay the original home loan remains deductible. See home loan balance transfer.
• Top-up loans: Deductible only if used for purchase, construction, repair or renovation, with proof.
• Loan from relatives or friends: Interest can qualify under house property rules with a certificate, but principal does not qualify under Section 123.
• Processing fees and prepayment charges: Generally treated as interest for house property purposes by many practitioners, but keep documentation and seek professional advice if the amount is significant.

Key takeaways

• Home loan interest (old Section 24(b), now Section 22) is deductible up to ₹2 lakh a year on a self-occupied house, only in the old regime.
• Principal, stamp duty and registration (old Section 80C, now Section 123) share the ₹1.5 lakh limit, also old regime only.
• In the new regime, only let-out property interest is deductible, and losses cannot be set off or carried forward.
• Joint owners who are co-borrowers can each claim the full limits.
• In the example, a 30% slab borrower saves about ₹99,840 a year; compare regimes before choosing.