Home Loan interest deduction in new tax regime 2026

Buying a home is one of the biggest financial decisions you will ever make. For most Indian taxpayers, a home loan is not just a financial commitment—it is also a significant tax-saving opportunity. Every year, millions of taxpayers search for clarity on how much home loan interest they can deduct, especially with the ever-evolving tax landscape.

If you are wondering whether the new tax regime allows you to claim home loan interest deductions, you are not alone. This guide is designed to answer all your questions, break down complex tax laws into simple language, and help you make informed decisions for the financial year 2026-27. We will cover everything from Section 24(b) to the latest Budget 2026 updates, complete with practical examples and a clear comparison between old and new tax regimes.

What is Home Loan Interest Deduction?

A home loan interest deduction is a tax benefit that allows you to reduce your taxable income by deducting the interest component you pay on your housing loan. Simply put, the interest you pay to your bank or housing finance company is subtracted from your total income before calculating your income tax liability.

The logic behind this benefit is simple: since you are using borrowed money to acquire or construct a house, the cost of that borrowing—the interest—is treated as a legitimate expense that should reduce your taxable income. This deduction is primarily governed by Section 24(b) of the Income Tax Act .

Why is this important?

For most homebuyers, the interest component forms a significant portion of their monthly EMI, especially in the initial years. This deduction can result in substantial tax savings, effectively reducing the overall cost of buying a home.

How Home Loan Tax Benefits Work

Home loan tax benefits in India are divided into two main categories: interest deduction and principal repayment deduction.

Interest Deduction (Section 24(b))

This covers the interest portion of your home loan EMI. For a self-occupied property, the maximum deduction under the old tax regime is ₹2 lakh per year . For a let-out property, the entire interest paid can be deducted from rental income, with no upper limit .

Principal Repayment Deduction (Section 80C)

This covers the principal portion of your home loan EMI. You can claim a deduction of up to ₹1.5 lakh per year under Section 80C of the Income Tax Act .

Crucial Point: The principal repayment deduction is available only under the old tax regime for self-occupied properties .

Additional Deductions (Section 80EE & 80EEA)

There are specific sections for first-time homebuyers that offer additional interest deductions beyond Section 24(b). These will be discussed in detail later.

Section 24(b) Explained

Section 24(b) is the primary provision governing home loan interest deductions. Under this section, the deduction depends on whether the property is self-occupied or let out .

Key Conditions for ₹2 Lakh Limit:

• The property must be acquired or constructed with borrowed capital.

• The acquisition or construction must be completed within five years from the end of the financial year in which the capital was borrowed .

• You must furnish a certificate from the lender specifying the interest payable .

Pre-Construction Interest: Interest paid during the period before construction is completed can be claimed as a deduction in five equal installments starting from the year of completion. However, the Budget 2026 has clarified that this prior-period interest is included within the overall ₹2 lakh limit for self-occupied properties .

Section 80C Explained

Section 80C is a popular section that allows individuals and HUFs to claim deductions on various investments and expenses, including the principal repayment of a home loan .

Important Note: The deduction for principal repayment is subject to conditions such as:

• The property cannot be sold within five years from the date of possession. If sold, the deductions claimed under Section 80C on the principal repayment are reversed and added back to your income in the year of sale .

• The payment must be made towards a loan taken from a bank, co-operative bank, or housing finance company.

Section 80EE Explained

Section 80EE provides an additional deduction on home loan interest for first-time homebuyers. It is over and above the ₹2 lakh deduction under Section 24(b). This benefit is available only under the old tax regime .

Section 80EEA Explained

Section 80EEA is another provision for additional interest deduction, aimed at promoting affordable housing. This section allows a deduction of up to ₹1.5 lakh on home loan interest for first-time buyers .

When combined with Section 24(b), an eligible taxpayer can claim a total interest deduction of up to ₹3.5 lakh in a financial year .

Can You Claim Home Loan Interest Deduction in New Tax Regime?

This is the most common question among taxpayers, and the answer has two parts:

1. For Self-Occupied Property: No. Under the new tax regime, you cannot claim the deduction of up to ₹2 lakh on home loan interest for a self-occupied property. The Income Tax Department has disabled this field in the ITR utility for taxpayers who opt for the new regime .

2. For Let-Out Property: Yes. If you have rented out your property, you can claim the full interest paid on the home loan as a deduction against your rental income. This benefit is available under both the old and new tax regimes . However, under the new regime, if the interest payment exceeds the rental income, the resulting loss cannot be adjusted against other income sources like salary .

Important: Since the new tax regime is the default regime, you must actively choose the old regime at the time of filing your return if you wish to claim the ₹2 lakh deduction for a self-occupied property .

Latest Rules for FY 2026-27

The Finance Act, 2025 brought in significant changes with the introduction of the New Income Tax Act, 2025. Here are the key updates relevant to home loan tax benefits:

1. New Act, Similar Provisions: While the legal framework has changed, the tax benefits for home loans remain largely similar to the Income Tax Act, 1961. The provisions are now renumbered:

   • Section 24(b) of the old Act corresponds to Section 22(1)(b) and 22(1)(c) of the new Act .

   • Section 80C corresponds to Section 123 .

   • Section 80EEA corresponds to Section 131 .

2. Budget 2026 Amendment: A key amendment was proposed in Budget 2026 to clarify that the ₹2 lakh limit under Section 22(2) for self-occupied properties includes both current-year interest and prior-period (pre-possession) interest. This removes ambiguity and aligns the new Act with the older provisions .

3. Regime Applicability: The regime-wise applicability of deductions remains unchanged:

   • Self-Occupied Interest (Sec 22): Only Old Regime .

   • Let-Out Interest (Sec 22): Both Old and New Regime .

   • Principal Repayment (Sec 123): Only Old Regime .

   • Section 131 (80EEA): Only Old Regime .

Old Tax Regime vs New Tax Regime

Choosing between the old and new tax regimes is one of the most critical decisions for a taxpayer. Here is a detailed comparison to help you decide.

Comparison Table: Old vs New Tax Regime

Who Should Choose New Tax Regime?

The new tax regime is generally beneficial for individuals who:

• Do not have significant deductions or investments (life insurance, PPF, home loan, etc.).

• Have income up to ₹12 lakh per annum, as income up to this limit is tax-free after considering the standard deduction of ₹75,000 .

• Prefer a simpler tax filing process without the need to maintain investment proofs.

• Have a let-out property and want to enjoy lower tax rates while still claiming interest deduction against rental income.

Who Should Choose Old Tax Regime?

The old tax regime is more suitable for:

• Homeowners with self-occupied properties who want to claim the ₹2 lakh interest deduction and ₹1.5 lakh principal repayment deduction .

• Individuals with substantial tax-saving investments like PPF, life insurance, and ELSS.

• Taxpayers claiming deductions for children’s education, medical insurance, and other exemptions under various sections.

• First-time homebuyers eligible for additional deductions under Sections 80EE or 80EEA .

How to Decide?

Use a tax calculator to compute your tax liability under both regimes. If the tax savings from deductions under the old regime exceed the benefit of lower tax rates in the new regime, the old regime is the better choice.

Examples with Calculations

Let us understand the tax implications with real-life examples. We will assume the taxpayer is in the highest tax bracket (30%) under the old regime and compare the savings.

Example 1: ₹30 Lakh Home Loan

• Loan Amount: ₹30 Lakh

• Interest Rate: 8.5% p.a.

• Tenure: 20 Years

• Annual Interest: ₹2.4 Lakh (approx.)

• Principal Repayment: ₹0.5 Lakh (approx.)

Conclusion: The old regime offers a tax saving of approximately ₹75,000 in this case.

Example 2: ₹50 Lakh Home Loan

• Loan Amount: ₹50 Lakh

• Interest Rate: 8.5% p.a.

• Tenure: 20 Years

• Annual Interest: ₹4.0 Lakh (approx.)

• Principal Repayment: ₹0.9 Lakh (approx.)

Example 3: ₹75 Lakh Home Loan

• Loan Amount: ₹75 Lakh

• Interest Rate: 8.5% p.a.

• Tenure: 20 Years

• Annual Interest: ₹6.0 Lakh (approx.)

• Principal Repayment: ₹1.4 Lakh (approx.)

Example 4: ₹1 Crore Home Loan

• Loan Amount: ₹1 Crore

• Interest Rate: 8.5% p.a.

• Tenure: 20 Years

• Annual Interest: ₹8.0 Lakh (approx.)

• Principal Repayment: ₹1.5 Lakh (approx.)

Observation: In all cases, the old regime provides a significant tax saving. However, the new regime may still be beneficial if the taxpayer has no investments or if the income is below the tax-free threshold.

Tax Benefit for Different Borrowers

Salaried Employees

For salaried employees, the deduction is claimed through the employer by submitting Form 12B or investment declarations. The employer reduces the TDS (Tax Deducted at Source) accordingly. At the time of filing the return, the actual deduction is claimed in the ITR. Under the new tax regime, salaried employees cannot claim self-occupied interest, but they can claim interest on a let-out property. The new regime also offers a higher standard deduction of ₹75,000, compared to ₹50,000 in the old regime .

Self-Employed

Self-employed individuals can claim the same deductions as salaried employees. However, they do not have an employer to adjust TDS. They must pay advance tax and claim the deduction at the time of filing the return. For self-employed individuals, the choice of regime also depends on business income and the ability to claim other deductions.

Joint Home Loan

If you take a joint home loan with your spouse or any other family member, each co-borrower who is also a co-owner can claim the deductions independently .

Important: Both individuals must be co-owners and co-borrowers. The deduction is claimed in proportion to ownership share, but in practice, both can claim the full limit as long as the actual interest and principal payments support the claim .

Women Borrowers

There is no specific additional tax deduction for women borrowers under the Income Tax Act. However, banks often offer lower interest rates to women, which can reduce the overall cost of the loan. Some state governments also offer stamp duty concessions for women property buyers.

First-Time Home Buyers

First-time homebuyers are eligible for additional deductions under:

• Section 80EE: Up to ₹50,000 (subject to conditions).

• Section 80EEA: Up to ₹1,50,000 (subject to conditions) .

These are over and above the ₹2 lakh limit under Section 24(b).

Self Occupied Property

A self-occupied property is one that is occupied by the owner or his family for residential purposes. The tax treatment for self-occupied property differs significantly:

• Old Regime: Deduction for interest on borrowed capital is allowed up to ₹2 lakh . A deduction for principal repayment is available under Section 80C .

• New Regime: No deduction is available for interest or principal repayment .

Let Out Property

A let-out property is one that is rented out to a tenant. The tax treatment is more favorable for let-out properties:

• Old Regime: The net annual value (rental income minus municipal taxes) is taxed. The entire interest paid on the loan can be deducted from this rental income, with no upper limit . The principal repayment deduction is also available under Section 80C.

• New Regime: The entire interest paid can be deducted from the rental income. However, if the interest exceeds the rental income and creates a loss, that loss cannot be set off against other income .

Common Mistakes People Make

1. Choosing the New Regime Without Calculating: Many taxpayers opt for the new regime without considering the tax savings they could get from home loan deductions under the old regime. Always calculate your tax liability under both regimes before making a decision .

2. Not Maintaining Proper Documentation: To claim deductions, you must maintain proper documentation like the interest certificate from the lender, property purchase deed, and possession certificate. Failure to provide these documents can lead to rejection of your claim .

3. Not Claiming Pre-Construction Interest: Many taxpayers forget to claim pre-construction interest, which is allowed in five equal installments from the year of completion. This can result in missed tax savings .

4. Joint Loan Ownership Mismatch: For a joint loan, both co-owners must also be co-borrowers to claim the deduction. If a co-owner is not a co-borrower, they cannot claim the deduction .

5. Selling Property Within 5 Years: If you sell your property within 5 years of possession, the deductions claimed under Section 80C on principal repayment are reversed and added back to your income .

Latest Income Tax Updates (2026)

1. New Income Tax Act, 2025: The provisions related to home loan deductions have been renumbered but remain largely similar .

2. Budget 2026 Clarification: The Budget clarified that prior-period (pre-possession) interest is included within the ₹2 lakh limit for self-occupied properties .

3. Higher Standard Deduction in New Regime: The new regime offers a standard deduction of ₹75,000 on salary income, up from ₹50,000 in the old regime .

4. Tax-Free Income Up to ₹12 Lakh: Under the new regime, an individual with income up to ₹12 lakh pays no tax after the standard deduction .

5. Section 80EEA Deduction: Still available for loans sanctioned up to March 31, 2022, but only under the old regime .

How to Calculate Home Loan Tax Savings

Calculating your home loan tax savings is a straightforward process. Follow these steps:

Step 1: Gather Your Home Loan Documents

• Annual Interest Certificate: Request your lender to provide an interest certificate for the financial year. This certificate shows the total interest and principal repaid during the year .

• Property Documents: Keep the property purchase deed, possession certificate, and builder agreement ready.

• Loan Sanction Letter: This is required for claiming deductions under Sections 80EE and 80EEA.

Step 2: Identify Your Property Type

Determine whether your property is self-occupied, let-out, or deemed let-out. This will determine which deductions you can claim.

Step 3: Calculate Your Deductions

• Self-Occupied (Old Regime):

  • Interest Deduction: Up to ₹2,00,000 (including pre-construction interest) .

  • Principal Deduction: Up to ₹1,50,000 under Section 80C .

  • Additional Deduction: ₹50,000 (Sec 80EE) or ₹1,50,000 (Sec 80EEA) if eligible .

• Let-Out (Both Regimes):

  • Interest Deduction: Full interest paid against rental income .

  • Principal Deduction (Old Regime Only): Up to ₹1,50,000 under Section 80C .

Step 4: Compute Tax Saving

Multiply your total deductions by your applicable tax slab rate (e.g., 30%, 20%, or 5%). This gives you the amount of tax saved.

Using BankerMart Tools

You can simplify the entire calculation using BankerMart's Home Loan EMI Calculator and Tax Calculator:

• Home Loan EMI Calculator: Estimate your monthly EMI and the total interest payable over the loan tenure.

• Eligibility Calculator: Determine how much loan you can afford based on your income.

• Tax Calculator: Estimate your tax liability under both the old and new tax regimes, taking into account your home loan deductions.

Benefits of Comparing Home Loans Before Applying

The interest rate you get on a home loan can significantly impact your monthly EMI and the total interest you pay. A difference of just 0.5% in interest rate can translate into lakhs of rupees over a 20-year loan tenure. This is why comparing home loan offers from different banks is crucial.

How BankerMart Can Help:

BankerMart is a home loan comparison platform that helps you find the best deals from multiple banks. We do not directly provide loans but simplify the process by allowing you to:

• Compare Interest Rates: View current offers from leading banks like SBI, HDFC, ICICI, Bank of Baroda, and Canara Bank.

• Check Eligibility: Use our eligibility calculator to see which loans you qualify for.

• Calculate EMI: Use our EMI calculator to plan your monthly budget.

• Process Fees Comparison: Compare processing fees and other charges.

By comparing offers, you can make an informed borrowing decision and potentially save a significant amount of money.

Documents Required for Tax Claim

When claiming home loan tax benefits, it is essential to have the following documents:

1. Interest Certificate: Issued by the lender, detailing the interest paid during the financial year .

2. Principal Repayment Certificate: Issued by the lender, detailing the principal repaid.

3. Property Documents: Sale deed, purchase agreement, or construction agreement.

4. Possession Certificate: To confirm the completion of construction and date of possession.

5. Loan Sanction Letter: Required for claims under Sections 80EE and 80EEA.

6. Building Completion Certificate: To prove that construction is complete.

7. Rental Agreement: If the property is let out.

Frequently Asked Questions

1. Can I claim home loan interest deduction in new tax regime for a self-occupied property?
No, the ₹2 lakh deduction for a self-occupied property is not available in the new tax regime .

2. Can I claim home loan interest deduction in new tax regime for a let-out property?
Yes, the full interest paid can be deducted from rental income under both the old and new regimes .

3. What is the Section 24(b) limit for home loan interest?
Under the old regime, the limit is ₹2 lakh for self-occupied properties. There is no limit for let-out properties .

4. Is the new tax regime beneficial if I have a home loan?
It depends. If you want to claim deductions for interest and principal repayment, the old regime is better. However, if your income is up to ₹12 lakh, the new regime may offer tax-free income .

5. What is the maximum deduction under Section 80C for home loan principal?
The maximum deduction is ₹1.5 lakh per financial year, applicable only in the old regime .

6. Can I claim both Section 80EE and 80EEA?
No, you cannot claim both for the same property. You must choose one of them .

7. What is the deduction under Section 80EEA?
Section 80EEA allows a deduction of up to ₹1.5 lakh on home loan interest for first-time buyers, over and above the ₹2 lakh limit. It is available for loans sanctioned up to March 31, 2022 .

8. Can a woman borrower claim extra deduction?
No, there is no separate deduction for women under the Income Tax Act.

9. Can I claim home loan tax benefit for a joint loan?
Yes, each co-owner who is also a co-borrower can claim the deduction independently .

10. What happens if I sell my house within 5 years?
If you sell within 5 years of possession, the deductions claimed under Section 80C on principal repayment are reversed and added to your income .

11. Is pre-construction interest deductible?
Yes, pre-construction interest is allowed in five equal installments from the year of completion, but it is included within the ₹2 lakh overall limit .

12. Can I claim the standard deduction along with home loan interest?
Yes, the standard deduction of ₹50,000 (old regime) or ₹75,000 (new regime) on salary income is allowed in addition to home loan deductions .

13. Which regime is better for salaried employees with a home loan?
It depends on the amount of tax-saving investments. Use a tax calculator to determine which regime yields lower tax.

14. Can I claim a home loan deduction for a property under construction?
Yes, pre-construction interest can be claimed in five equal installments starting from the year of completion .

15. Is the interest on a home loan for a second house deductible?
Yes, for a self-occupied second house, the deduction limit is ₹2 lakh (old regime). For a let-out house, full interest is deductible .

16. How do I claim the deduction in the ITR?
Fill in the \"Income from House Property\" section in the ITR. For the new regime, the self-occupied interest field will be disabled .

17. What is the due date for ITR filing for AY 2026-27?
The due date for most taxpayers is July 31, 2026 .

18. Does BankerMart provide home loans?
No, BankerMart is a comparison platform that helps you find the best home loan offers from multiple banks.

19. How can BankerMart help me save on my home loan?
We help you compare interest rates and processing fees, enabling you to choose the most cost-effective loan.

20. Can I claim home loan tax benefits if I have a loan from a co-operative bank?
Yes, loans from co-operative banks are eligible for deductions under Section 24(b) and Section 80C .

Conclusion

The decision to claim a home loan interest deduction depends heavily on the tax regime you choose. Under the new tax regime, you cannot claim the ₹2 lakh deduction for a self-occupied property, but you can still deduct the full interest for a let-out property against rental income . Under the old tax regime, you can claim both interest (up to ₹2 lakh) and principal repayment (up to ₹1.5 lakh) deductions, making it more beneficial for most homeowners with significant loan obligations .

With the Finance Act 2025 and Budget 2026 clarifications, the rules have been streamlined, but the choice between regimes remains a crucial one. Calculate your tax liability under both systems, consider your long-term financial goals, and choose wisely.

Take the Next Step with BankerMart

Before finalizing your home loan, compare interest rates and terms from multiple banks. A small difference in interest rate can save you lakhs of rupees. Use BankerMart's calculators to check your eligibility, compute EMI, and estimate tax savings.

• Compare Home Loan Interest Rates

• Check Your Eligibility

• Calculate Your EMI

• Estimate Your Tax Savings

Make an informed decision today. Explore the best home loan offers on BankerMart and take a confident step toward homeownership.