Home Loan Tax Benefit FY 2026-27
A home loan is one of the few financial commitments that actually reduces your tax outgo. For salaried professionals repaying a housing loan in FY 2026-27, the Income Tax Act gives you deductions on both the interest component and the principal component of your EMI. Knowing which section covers what, and how much you can actually save, makes a real difference to your tax planning.
This guide covers every home loan tax benefit FY 2026-27, the situation under the new regime, and how to calculate your actual savings with real numbers.
Home Loan Tax Benefits at a Glance
| Section | What It Covers | Maximum Deduction | Regime Applicable |
|---|---|---|---|
| Section 24(b) | Interest on home loan (self-occupied) | Rs. 2,00,000 per year | Old regime only |
| Section 24(b) | Interest on home loan (let-out property) | Actual interest (no cap) | Old regime only |
| Section 80C | Principal repayment | Up to Rs. 1,50,000 (within overall 80C limit) | Old regime only |
| Section 80EEA | Additional interest (affordable housing) | Rs. 1,50,000 over and above Section 24(b) | Old regime only (loan sanctioned before March 31, 2022) |
Important: Under the new tax regime, none of these deductions are available. This is a major factor when you compare regimes as a salaried professional with a home loan.
Section 24(b): Deduction on Home Loan Interest
Section 24(b) of the Income Tax Act 1961 (now Section 119 of the Income Tax Act 2025, though the July 2026 ITR filing still uses the 1961 Act numbers) allows you to deduct home loan interest from your income under the head “Income from House Property.”
For Self-Occupied Property
If you live in the house you bought with the loan, the maximum deduction on interest is Rs. 2,00,000 per financial year.
Two conditions must be satisfied to claim this full amount:
- The loan must have been taken on or after April 1, 1999
- Construction or purchase of the property must be completed within 5 years from the end of the financial year in which the loan was taken
If construction is not completed within 5 years, the deduction limit drops to just Rs. 30,000.
Pre-construction interest (interest paid before possession) can be claimed in 5 equal instalments starting from the year of possession.
For Let-Out Property
If the property is rented out, there is no upper limit on the interest deduction under Section 24(b). You can deduct the entire interest paid. However, if this creates a loss under house property income, you can only set off Rs. 2,00,000 of that loss against other income heads such as salary in a single financial year. The remaining loss gets carried forward for up to 8 years.
Example: Rahul in Bengaluru
Rahul earns Rs. 14 lakh per year. He has a home loan with an outstanding balance of Rs. 45 lakh at 8.75% interest. His annual interest component for FY 2026-27 is approximately Rs. 3,93,750.
Since the property is self-occupied, he can claim only Rs. 2,00,000 under Section 24(b), not the full Rs. 3,93,750. If his tax slab is 20%, this deduction saves him Rs. 40,000 in tax.
Section 80C: Deduction on Principal Repayment
The principal portion of your home loan EMI qualifies for deduction under Section 80C. This is part of the combined Rs. 1,50,000 annual limit that also includes PPF, ELSS, LIC premium, and other 80C investments.
Key conditions:
- The property must not be sold within 5 years of possession. If you sell before 5 years, the deduction claimed in earlier years gets added back to your income in the year of sale
- Stamp duty and registration charges paid at the time of purchase also qualify under Section 80C, but only in the year they are paid
- This deduction is available only on a residential property (not commercial)
Example: Priya in Pune
Priya pays an EMI of Rs. 32,000 per month on her home loan. In FY 2026-27, her annual EMI outgo is Rs. 3,84,000. Of this, her principal repayment is approximately Rs. 1,10,000 and interest is Rs. 2,74,000.
She can claim Rs. 1,10,000 under Section 80C (as part of her total 80C limit of Rs. 1,50,000) and Rs. 2,00,000 under Section 24(b). In the 20% tax slab, this combined deduction of Rs. 3,10,000 saves her approximately Rs. 62,000 in tax.
Section 80EEA: Additional Interest Deduction for Affordable Housing
Section 80EEA was introduced to encourage affordable housing purchases. It provides an additional deduction of up to Rs. 1,50,000 on home loan interest, over and above the Rs. 2,00,000 available under Section 24(b).
Conditions to claim Section 80EEA:
- The loan must have been sanctioned between April 1, 2019 and March 31, 2022 (this window is now closed for new loans)
- The stamp duty value of the property must not exceed Rs. 45 lakh
- You must not own any other residential house property on the date of loan sanction
- Section 80EE must not have been claimed for the same property
If you took a loan for an affordable property before March 31, 2022 and still meet these conditions, you can continue claiming this deduction in FY 2026-27 for the interest paid during the year.
The maximum combined benefit then becomes: Rs. 2,00,000 (Section 24b) + Rs. 1,50,000 (Section 80EEA) = Rs. 3,50,000 on interest alone.
Joint Home Loan: Doubling the Tax Benefit
If a home loan is taken jointly, each co-borrower who is also a co-owner of the property can claim deductions independently. This is one of the most effective ways to maximize home loan tax benefits.
| Co-borrower | Section 24(b) Claim | Section 80C Claim | Total Deduction |
|---|---|---|---|
| Husband | Rs. 2,00,000 | Rs. 1,50,000 | Rs. 3,50,000 |
| Wife | Rs. 2,00,000 | Rs. 1,50,000 | Rs. 3,50,000 |
| Combined | Rs. 4,00,000 | Rs. 3,00,000 | Rs. 7,00,000 |
Both must be co-owners and co-borrowers. The share of interest and principal is typically claimed in proportion to ownership share, though in practice both can claim the full limit as long as the actual amounts paid support it.
Under Construction Property: Pre-EMI Interest Rules
When you buy an under-construction property, your loan is disbursed in stages and you pay interest (called pre-EMI interest) before the property is handed over. This pre-EMI interest cannot be claimed year by year. Instead, the total pre-EMI interest is added up and deducted in 5 equal installments starting from the year you receive possession.
This is often missed by first-time buyers. If your property was under construction for 3 years before possession and you paid Rs. 4,50,000 as pre-EMI interest during that time, you can claim Rs. 90,000 per year for 5 years after possession (subject to the overall Rs. 2,00,000 limit combining pre-EMI installment and current-year interest).
New Tax Regime and Home Loan: What You Lose
The new tax regime offers lower tax slabs but removes most deductions. For home loan borrowers specifically:
- Section 24(b) interest deduction: Not available (for self-occupied property)
- Section 80C principal deduction: Not available
- Section 80EEA: Not available
The only partial exception: If you have a let-out property, the interest deduction under Section 24(b) is still available even in the new regime, but the set-off of house property loss against salary income is not allowed. Any loss under house property in the new regime can only be carried forward, not adjusted in the same year.
For most salaried professionals with a home loan of Rs. 30 lakh or more, the old regime remains more beneficial. The combined deductions of Rs. 3.5 lakh to Rs. 3.5 lakh per co-borrower often outweigh the lower slab rates in the new regime, especially in the Rs. 10 lakh to Rs. 20 lakh income range. Check the income tax slabs FY 2026-27 to run your own comparison.
Full Calculation Example: Amit, Salary Rs. 18 Lakh
Amit is a salaried professional in Hyderabad earning Rs. 18 lakh gross. He has a home loan with annual interest of Rs. 2,40,000 and annual principal repayment of Rs. 1,20,000. He also invests Rs. 30,000 in PPF.
Under Old Tax Regime
| Item | Amount (Rs.) |
|---|---|
| Gross Salary | 18,00,000 |
| Less: Standard Deduction | (50,000) |
| Less: Section 24(b) Interest | (2,00,000) |
| Less: Section 80C (Principal Rs. 1,20,000 + PPF Rs. 30,000) | (1,50,000) |
| Taxable Income | 14,00,000 |
| Tax (old regime slabs) | Approx. Rs. 2,32,500 + cess |
| Total Tax Payable (with 4% cess) | Approx. Rs. 2,41,800 |
Under New Tax Regime
| Item | Amount (Rs.) |
|---|---|
| Gross Salary | 18,00,000 |
| Less: Standard Deduction | (75,000) |
| Taxable Income | 17,25,000 |
| Total Tax Payable (with 4% cess) | Approx. Rs. 2,86,650 |
In Amit’s case, the old regime saves approximately Rs. 44,850 compared to the new regime, entirely because of the home loan deductions. This is a meaningful difference that justifies staying on the old regime.
Documents Required to Claim Home Loan Tax Benefit
- Home loan interest certificate from your bank or NBFC (issued annually, usually in April for the previous year)
- Repayment schedule or amortization table showing principal and interest breakup
- Completion or possession certificate (to confirm the 5-year construction condition)
- Co-ownership documents if claiming as joint borrowers
- Stamp duty and registration receipts if claiming those under 80C
Your employer will ask for the interest certificate when computing TDS on salary under Section 192. Submit it before the last quarter of the financial year so the correct deduction is reflected in your Form 130 (earlier Form 16).
Where to Enter This in Your ITR
When you file your return by the ITR filing deadline of July 31, 2026:
- Section 24(b) interest: Entered under “Income from House Property” (negative value for self-occupied property shows as loss)
- Section 80C principal: Entered in the deductions schedule under Chapter VI-A
- Section 80EEA: Separate entry in the deductions schedule
For most salaried professionals who own one self-occupied property, ITR-1 (Sahaj) is sufficient. If you have a let-out property with rental income or if house property loss needs to be carried forward, you need ITR-2.
Common Mistakes to Avoid
- Claiming Section 24(b) on a home loan that is still under construction without possession: You cannot claim current-year interest before possession. Only the pre-EMI installment method applies.
- Forgetting to include stamp duty in Section 80C: This is a one-time claim and only valid in the year of payment, but most people miss it.
- Claiming the full Rs. 1,50,000 under 80C only for principal when PPF or other investments have already used the limit: 80C is a combined limit, not separate for each instrument.
- Choosing the new regime without accounting for home loan deductions: Run the numbers both ways before your employer asks for your regime choice declaration in April.
- Selling the property within 5 years of possession: This reverses all the 80C principal deductions claimed in earlier years.
Frequently Asked Questions
Can I claim home loan tax benefit on a second home?
Yes. If the second property is let out, the actual interest paid is deductible under Section 24(b) without any cap. If it is treated as self-occupied (you can declare one property as self-occupied under the deemed let-out rules), the limit is Rs. 2,00,000. The second property loan principal also qualifies under Section 80C within the overall Rs. 1,50,000 limit.
Can I claim both HRA and home loan tax benefits simultaneously?
Yes, this is possible and completely valid. If you are paying rent and also repaying a home loan on a property in another city, you can claim HRA exemption on the rent paid and also claim Section 24(b) and 80C on the home loan simultaneously. This is a common situation for salaried professionals who work in one city but own a property elsewhere.
What if my loan is from family or friends, not a bank?
Section 24(b) interest deduction is available even on loans taken from family members, as long as you can prove the loan, the interest rate, and actual payment of interest. However, Section 80C principal deduction is not available for such informal loans. Section 80EEA is also not available.
Is there any benefit under the new tax regime for home loans?
For a self-occupied property, no deduction is available under the new regime. For a let-out property, Section 24(b) interest can be deducted from rental income, but any resulting loss cannot be set off against salary income in the same year under the new regime.
Summary: Home Loan Tax Benefits FY 2026-27
If you are on the old tax regime and repaying a home loan on a self-occupied property, you can claim up to Rs. 2,00,000 under Section 24(b) on interest and up to Rs. 1,50,000 under Section 80C on principal repayment (shared with other 80C investments). For loans sanctioned before March 31, 2022 on affordable housing, an additional Rs. 1,50,000 is available under Section 80EEA. Joint loans with a co-owning spouse effectively double these limits.
These benefits are significant enough that for most professionals with a home loan above Rs. 25 lakh, the old regime remains the better choice despite lower tax slabs in the new regime. The right decision depends on your exact income, loan size, and other deductions. For a complete picture of how deductions work across both regimes, the Complete Income Tax Guide India on finlecture.in covers all the key rules in one place.
