Home Loan Tax Benefit 2026-27: Interest, Principal and Regime Choice

Published: 26 October 2026 | Updated on: 26 October 2026 | By L K Monu Borkala, CEO & Founder, OneCity Property — 15 years of property consultancy experience and over 20 years in marketing and management at OneCity Technologies Pvt. Ltd.

What is the home loan tax benefit for tax year 2026-27?

A home loan gives you a tax claim because the law lets you deduct the interest on money borrowed to buy, build, repair or rebuild a house when you work out your income from house property. Repayment of the principal is handled separately, as a savings-type deduction. The Income-tax Act 2025 came into force on 1 April 2026, so tax year 2026-27 is the first one computed under it. The interest deduction that used to be Section 24(b) now sits in Section 22, and the Rs 2,00,000 and Rs 30,000 limits are in Section 22(2). Returns for earlier years still follow the 1961 Act and its Section 24(b).

We read the text of Section 22 of the Income-tax Act 2025 on the Income Tax Department's website while writing this guide. Where a limit comes from a department page, the link sits beside it. Where we could not confirm a point against an official page, the guide says so.

How much interest can you claim on a house you live in?

Section 22(2) of the Income-tax Act 2025 sets two limits for a self-occupied house, which the Act treats as a property under Section 21(6). The higher limit is Rs 2,00,000 a year. It applies only when all three of these are true:

• The loan was taken to acquire or construct the house, not to repair it.
• The acquisition or construction is completed within five years from the end of the tax year in which the loan was taken.
• You furnish a certificate from the lender showing the interest payable on the loan.

In any other case the limit is Rs 30,000 a year. That includes loans taken for repairs, renewal or reconstruction, and loans where the house is not completed inside the five-year window.

What does the five-year completion rule mean for an under-construction flat?

The five years run from the end of the tax year in which you took the loan, not from the date of the builder-buyer agreement. If you took the loan in July 2026, that tax year ends on 31 March 2027, so the house must be completed by 31 March 2032 to keep the Rs 2,00,000 limit. Buyers in under-construction projects around Bangalore, Mangalore and Mysore should note the date from the loan sanction letter and compare it with the possession date in the agreement. A project that slips past the window moves you from Rs 2,00,000 to Rs 30,000, and no calculator will warn you about it.

How is interest paid before possession claimed?

Interest that accrues while the building is still under construction cannot be claimed in those years. The Act lets you claim it later, in five equal yearly instalments starting from the year you acquire or complete the house (Section 22(1)(c); the same method appears in the department's house property summary for the earlier Act). For a self-occupied house these instalments count inside the same Rs 2,00,000 cap.

Example. You paid Rs 4,00,000 of interest during construction. Each instalment is Rs 80,000. In the first year after possession you also pay Rs 2,50,000 of current interest. The total of Rs 3,30,000 is cut to the Rs 2,00,000 limit, so Rs 1,30,000 of that year's claim is lost to the cap.

Can you claim interest on two self-occupied houses?

Yes. The department's summary says that from assessment year 2020-21 a taxpayer can treat two houses as self-occupied, but the combined deduction stays at Rs 2,00,000 or Rs 30,000 across both. Section 22(5) of the 2025 Act repeats the aggregate cap for Section 21(6) properties. A second house does not add a second Rs 2,00,000.

How does home loan interest work on a let-out house?

When you rent the house out, the rent becomes income from house property. You deduct 30% of the annual value (Section 22(1)(a)) and the interest on the loan (Section 22(1)(b)). The e-filing portal's guidance shows interest on a let-out property as allowed at its actual value, without a limit. The portal also lists this row under the new regime, which is why a let-out house can still carry interest relief when you choose the new regime.

Example. You let a flat for Rs 25,000 a month. Take the annual value as Rs 3,00,000, assuming no municipal taxes were paid. The 30% deduction is Rs 90,000, which leaves Rs 2,10,000. You paid Rs 4,50,000 of interest. Income from house property is Rs 2,10,000 minus Rs 4,50,000, a loss of Rs 2,40,000.

What happens to that loss depends on your regime. The portal's guidance for the old regime says the loss can be set off against other income only up to a fixed amount, and the balance carried forward for up to 8 assessment years. How a loss is treated under the new regime is a point to confirm with your chartered accountant before you rely on it.

A let-out claim needs a clean paper trail. Keep a signed rent agreement and the rent receipts, and use the Rental Yield Calculator to compare the rent with the interest you are paying each year.

Can you claim the principal you repay?

Yes, but only under the old regime. Principal repayment is a savings-type deduction, grouped with provident fund contributions, life insurance premiums and similar items. The earlier Act called this Section 80C, and the 2025 Act moved it to a new section number. The e-filing portal gives the combined limit as Rs 1,50,000. If your provident fund and insurance already use most of it, the principal adds little.

Under the earlier Act, stamp duty and registration charges paid when buying a house also counted towards this limit in the year of payment. Confirm with your chartered accountant that the same holds for 2026-27. Our guides to stamp duty and registration charges in Karnataka and the stamp duty calculator for Karnataka show what you will pay at purchase.

In the early years of a long loan, most of each EMI goes to interest. That is why buyers usually reach the Rs 2,00,000 interest limit before they use up the Rs 1,50,000 limit on principal.

Old regime or new regime: which should a home buyer pick?

The home loan claims on a house you live in exist only under the old regime. The new regime offers lower rates, but without those deductions. So the choice is not about the loan alone. It is about your total deductions: home loan interest, principal and other savings, house rent allowance, health insurance and the rest.

1. Add up everything you can claim under the old regime. For a self-occupied house the loan can contribute up to Rs 2,00,000 of interest plus whatever fits in the Rs 1,50,000 savings limit.
2. Work out your tax both ways, using the return utility on the e-filing portal or with your chartered accountant.
3. Pick the lower figure. The portal says taxpayers without business income can change the default regime each year when they file the return, so the answer can differ from one year to the next.

Example. You are in the 30% bracket under the old regime. You pay Rs 3,40,000 of interest on a house you live in, repay Rs 1,10,000 of principal, and have Rs 50,000 of other savings deductions. The interest claim is capped at Rs 2,00,000. The principal and other savings total Rs 1,60,000, capped at Rs 1,50,000. Total deductions: Rs 3,50,000. At 30% plus 4% cess, the tax saved is about Rs 1,09,200, ignoring surcharge. You lose Rs 1,40,000 of interest and Rs 10,000 of savings to the caps.

Whether Rs 1,09,200 beats the lower new-regime rates depends on the rest of your income. Run both calculations before you tell your employer which regime to use, and recheck when you file the return.

Who claims the deduction on a joint home loan?

The generally followed position is that each person who is both a co-owner and a co-borrower, and who repays part of the loan, claims their own share of the interest, and each person's cap applies separately. Two co-owners of a house they live in can therefore claim up to Rs 2,00,000 each, provided each pays and owns a share. The claim follows the person who owns the property and pays the interest. A name on the loan without a name on the sale deed does not support a claim. Confirm the split with your chartered accountant, because it depends on ownership shares and on who actually repays.

Which documents support the claim?

• Lender's interest certificate. It is a condition of the Rs 2,00,000 limit under Section 22(2). Ask the bank for it every year, with the principal and interest split.
• Sanction letter and repayment schedule. They fix the date the loan was taken, which starts the five-year completion count.
• Sale deed or builder-buyer agreement. Our guide to property registration in Karnataka lists what a registered purchase leaves you with.
• Possession letter or completion proof. The date decides whether you met the five-year window.
• Stamp duty and registration receipts. These support the old-regime claim in the year of payment.
• Rent agreement and rent receipts. These are needed only for a let-out house.

What about the extra deduction for affordable housing loans?

The earlier Act gave first-time buyers of affordable homes an additional Rs 1,50,000 interest deduction under Section 80EEA, for loans sanctioned between 1 April 2019 and 31 March 2022. That window has closed, so a loan sanctioned today does not qualify. If you already hold such a loan, ask your chartered accountant how the claim continues under the 2025 Act, since the section numbers changed.

What happens to the tax picture when you sell?

A sale starts a separate set of tax questions. Gains on the property fall under capital gains tax on a property sale, and the buyer deducts tax at the time of payment. From April 2026 that deduction is reported on Form 141 in place of Form 26QB, as our guide to TDS on property sale explains. Keep your loan certificates and repayment records for the full holding period, because your chartered accountant will ask for them at the time of sale.

Which mistakes cost home buyers the most?

• Assuming Rs 2,00,000 applies automatically. If the house is not completed within five years of the end of the tax year of borrowing, the limit is Rs 30,000.
• Missing the lender's certificate. Section 22(2) makes it a condition for the higher limit.
• Claiming principal or self-occupied interest under the new regime. Those claims are old-regime claims.
• Forgetting pre-possession interest. It is spread over five years from the year of possession, and buyers often let the first instalment pass.
• Treating the employer's regime form as final. The portal says taxpayers without business income can switch regime when they file the return.
• Counting the whole EMI. Only the interest part of the EMI is an interest claim. The principal part belongs under the savings limit.

How can you estimate the tax effect before you borrow?

Start with the loan itself. Our home loan EMI calculator guide explains how the EMI splits into interest and principal, and the EMI Calculator shows that split year by year. The interest figure for the tax year, not the EMI, is what you claim. Then test how much loan your income supports with the Affordability Calculator. A loan sized by the tax saving alone is a mistake. The saving is a bonus on top of an EMI you can carry comfortably.

For the primary text, read the e-filing portal's guidance on deductions and regimes alongside Section 22 of the 2025 Act linked above.

This is general information, not tax advice. It has not been reviewed by a named chartered accountant. Figures are from the Income Tax Department pages linked in this guide. Confirm your own position with a chartered accountant before you file.

Frequently Asked Questions

Is home loan interest deductible under the new tax regime?
For a house you live in, no. The e-filing portal lists only the let-out property row for the new regime, where interest is allowed at its actual value. Interest on a self-occupied house is an old-regime claim.

What is the maximum home loan interest deduction for a self-occupied house in 2026-27?
Rs 2,00,000 a year under Section 22(2) of the Income-tax Act 2025, when the loan was taken to acquire or construct the house, the work is completed within five years from the end of the tax year of borrowing, and you furnish the lender's certificate. In any other case the limit is Rs 30,000.

Can I claim home loan interest before I get possession?
Not in those years. Interest paid before possession is claimed later, in five equal yearly instalments starting from the year you acquire or complete the house. For a self-occupied house the instalments count inside the Rs 2,00,000 cap.

Which section replaced Section 24(b)?
Section 22 of the Income-tax Act 2025. Section 22(1)(b) allows the interest, and Section 22(2) holds the Rs 2,00,000 and Rs 30,000 limits for self-occupied houses.

Can both spouses claim on a joint home loan?
Generally yes, when both are co-owners and co-borrowers and both repay part of the loan. Each person's limit applies to their own share. Confirm the split with a chartered accountant.

Is principal repayment deductible under the new regime?
No. Principal repayment is an old-regime deduction, counted within the Rs 1,50,000 combined limit with other savings.

Do I need the lender's certificate to claim the Rs 2,00,000 limit?
Yes. Section 22(2) makes a certificate from the lender, showing the interest payable on the capital, a condition of the higher limit.

Can I change my tax regime every year?
The e-filing portal says taxpayers without business income can change the default regime each year when they file the return. Taxpayers with business income have different rules, so they should ask a chartered accountant.