Paying a home loan can lower your income tax, but only in some cases. From 1 April 2026, a new law, the Income-tax Act, 2025, replaced the Income-tax Act, 1961. The section numbers many people know, like 24(b) and 80C, now have new numbers. This guide explains what the new Act's text says about home loans under the old and the new tax regime, as of October 2026. Tax rules have many conditions, so confirm your own case with a tax adviser.
What changed for home loan tax benefits in 2026?
The Income-tax Act, 2025 applies from 1 April 2026. The 1961 Act still governs earlier years, so returns for FY 2025-26 use the old section numbers. The new Act uses the term tax year for the year in which you earn the income.
| Benefit | Income-tax Act, 1961 | Income-tax Act, 2025 |
|---|---|---|
| Interest on a home loan | Section 24(b) | Section 22 |
| Principal repayment | Section 80C | Section 123 with Schedule XV |
| Extra interest deduction for certain loans sanctioned from April 2019 to March 2022 | Section 80EEA | Section 131 |
| New tax regime | Section 115BAC | Section 202 |
The ideas are much the same. What matters most is which tax regime you use.
What home loan tax benefits do you get under the old regime?
Interest on a home you live in
Section 22 lets you deduct interest on money borrowed to buy, build, repair or rebuild a house. For a home you live in, or one you cannot occupy for any reason, the deduction is capped at ₹2,00,000 a year. Section 21 lets you treat up to two such homes this way, and the ₹2,00,000 cap applies to both together.
The ₹2,00,000 cap applies only if:
- the house was bought or built with the loan,
- it was completed within five years from the end of the tax year in which you borrowed, and
- you have a certificate from your lender showing the interest payable.
In any other case, for example a loan only for repairs, the cap is ₹30,000. Check with a tax adviser how these conditions apply to you.
Interest paid before you got the house
If you paid interest while the house was being built, that interest is claimed in five equal parts. The first part is claimed in the tax year the house is bought or completed, and the rest over the next four years. These parts count within the same ₹2,00,000 cap for a home you live in.
Principal repayment
Section 123 gives individuals and HUFs a deduction of up to ₹1,50,000 a year for the items listed in Schedule XV. One item is the principal you repay on a loan to buy or build a residential house. The lender must be one the Schedule lists, such as a bank (including a co-operative bank), LIC, the National Housing Bank, certain housing finance companies or certain employers. Stamp duty, registration fee and other transfer expenses for the house also count.
Keep three limits in mind:
- The ₹1,50,000 is shared with other Schedule XV items, such as life insurance premiums and provident fund contributions.
- Repairs, renovation or additions after the house is completed or occupied do not count.
- If you transfer the house before five years from the end of the tax year in which you got possession, the deductions claimed earlier are treated as your income in that year.
An extra deduction for some loans from 2019 to 2022
Section 131 (earlier Section 80EEA) allows up to ₹1,50,000 more of interest a year in narrow cases. The loan must be from a financial institution and sanctioned between 1 April 2019 and 31 March 2022. The house's stamp duty value must not be more than ₹45 lakh. You must not have owned a residential house on the date the loan was sanctioned, and other conditions apply. Interest claimed here cannot be claimed again under any other section. Check with a tax adviser whether you qualify.
Can you claim home loan benefits under the new tax regime?
The new regime under Section 202 is the default. It removes most deductions. For home loans, Section 202(2) says:
- The Section 22 interest deduction is not allowed for a home you live in or cannot occupy.
- Chapter VIII deductions are not allowed, apart from a few named exceptions. Sections 123 (principal) and 131 are in Chapter VIII and are not among the exceptions, so they are not available.
- A loss under the head "Income from house property" cannot be set off against any other income, such as salary. It cannot be carried forward either.
For a home you rent out, Section 202 bars the interest deduction only for homes you live in or cannot occupy. So interest on a let-out home may still reduce your rental income. But if interest is more than the rent left after the standard 30% deduction, the extra loss gives no benefit under the new regime. Check with a tax adviser.
Worked example: how much can you claim?
Take a ₹40,00,000 loan at 8.50% a year for 20 years (240 months). The EMI (equated monthly instalment) formula is: EMI = P × r × (1 + r)^n ÷ [(1 + r)^n − 1]. Here P is the loan, r is the monthly rate (8.50 ÷ 12 ÷ 100) and n is the number of months. The EMI is ₹34,713.
In the first 12 months you pay ₹4,16,555 in EMIs. Of this, ₹3,36,946 is interest and ₹79,609 is principal.
| Year 1 situation | Old regime | New regime |
|---|---|---|
| Home you live in: interest ₹3,36,946 | Deduction of ₹2,00,000 (capped). ₹1,36,946 of interest gets no deduction. | Nil |
| Home you live in: principal ₹79,609 | Up to ₹79,609, if your ₹1,50,000 limit has room | Nil |
| Home let out at ₹2,40,000 a year | ₹2,40,000 − 30% (₹72,000) − interest ₹3,36,946 = loss of ₹1,68,946. Separate set-off rules and limits apply. | Same loss of ₹1,68,946, but it cannot be set off against salary or carried forward |
The let-out row is a simple case. It assumes the annual value equals the rent received and that no municipal taxes were paid. Real cases can differ.
The interest part of your EMI falls every year. In this example, yearly interest first drops below ₹2,00,000 in year 13 (about ₹1,96,576). Until then, the cap, not your actual interest, sets the old-regime deduction.
How much tax a deduction saves depends on your tax rate. For example, if your marginal rate were 20%, a ₹2,00,000 deduction would cut tax by ₹40,000, before any cess or surcharge. Check your own figures with a tax adviser.
Old or new regime: which is better with a home loan?
There is no single answer. The old regime may help if your total deductions, including home loan interest and principal, are large. The new regime may suit you if they are small. Work out your tax both ways each year, or ask a tax adviser.
How to choose, under Section 202(4):
- No business or professional income: you choose the old regime along with your return for that year.
- Business or professional income: you must opt out on or before the return due date. That choice carries on to later years, and you can withdraw it only once.
What about joint home loans, prepayment and switching?
- Joint loans: if you co-own the home and share the loan, ask a tax adviser how these limits apply to each of you.
- Prepayment: under the old regime, if yearly interest stays above ₹2,00,000 after prepaying, your interest deduction does not change. The lump sum may count within the ₹1,50,000 principal limit. Check with a tax adviser.
- Balance transfer: Section 22 says the lender's certificate should show interest on the original loan and on any new loan taken to repay it. Keep interest certificates from both lenders, and check with a tax adviser.
Do it in 10 minutes, free
Use the LowerMyEMI EMI calculator to see how much of each year's EMIs is interest and how much is principal. Export it to Excel or PDF and share it with your tax adviser.
If your home loan rate looks high, LowerMyEMI can also write a ready letter asking your own bank for a lower rate, and one email per lender asking for their offer. You send them from your own email. We are not a lender, do not give tax advice and do not promise any rate; lenders decide.