Home loan tax benefits and EMI

Definition

From 1 April 2026 the Income-tax Act, 2025 replaced the Income-tax Act, 1961. The limits did not change, but the section numbers did: home-loan interest moved from Section 24(b) to Section 22, and principal repayment from Section 80C to Section 123. For tax year 2026-27, the old tax regime can allow eligible home-loan interest under Section 22 and principal repayment within Section 123. The new regime (Section 202, previously 115BAC) generally does not allow either benefit for a self-occupied home. A let-out property’s interest treatment differs, and the old 80EEA deduction (now Section 131) is closed to loans sanctioned after 31 March 2022.

Tax rules last verified: October 2026, for tax year 2026-27. Source: Press Information Bureau, “Income-tax Act, 2025 comes into force from today”, 1 April 2026. Confirm against Income Tax Department guidance before you file. This page is educational, not advice.

Tax deductions reduce taxable income, not the home loan EMI charged by your lender. Calculate affordability on the full EMI using the home loan EMI calculator, then assess tax separately on the tax benefit calculator.

Quick comparison for tax year 2026-27

Item	Old tax regime	New tax regime
Self-occupied home-loan interest, Section 22 (old 24(b))	Up to ₹2 lakh, subject to conditions	Generally not available
Principal repayment, Section 123 (old 80C)	Within combined ₹1.5 lakh limit	Not available
Stamp duty and registration under Section 123	Eligible in the payment year, within limit and conditions	Not available
Let-out property interest	Deduction can be computed; house-property loss set-off is restricted to ₹2 lakh against other heads in a year	Interest computation may apply, but house-property loss cannot be set off against other heads
Section 131 (old 80EEA)	Only for loans sanctioned in the notified historical window and all conditions met	Not available

This is a summary, not a tax return calculation. Ownership, possession date, completion, co-borrower status, rent, prior deductions and property use can change the outcome.

Section 22 (old 24(b)): interest deduction

Deduction for home-loan interest

Section 22 (previously Section 24(b) of the 1961 Act) deals with interest on borrowed capital used to acquire, construct, repair, renew or reconstruct house property.

For an eligible self-occupied property under the old regime, the commonly applicable maximum deduction for acquisition or construction interest is ₹2 lakh a tax year, subject to statutory conditions. A lower ₹30,000 ceiling can apply in cases that do not satisfy the higher-limit requirements, including certain repair or reconstruction situations.

The ₹2 lakh figure is a deduction from income under the house-property computation. It is not a ₹2 lakh tax refund. If a taxpayer in a particular marginal slab claims a deduction, the tax effect is only the tax otherwise payable on that deducted income, subject to the full return computation.

Construction completion and possession matter

For acquisition or construction, eligibility for the higher self-occupied limit is tied to conditions including completion within the prescribed period. Keep the possession letter, completion or occupancy documentation, sanction letter and lender interest certificate.

If construction is delayed beyond the applicable statutory period, the available ceiling may be lower. Do not rely only on a builder’s promised date when estimating a future tax benefit.

Pre-construction interest

Interest paid before completion is generally not claimed in full during construction. Eligible pre-construction interest is commonly claimed in five equal instalments beginning in the year of acquisition or completion, subject to Section 22 conditions.

Example: if eligible pre-construction interest totals ₹3 lakh, the starting point is ₹60,000 a year for five years. For a self-occupied property, that instalment and current-year interest share the applicable annual Section 22 ceiling. It does not sit above the ₹2 lakh limit.

Ask the lender for a year-wise interest certificate. EMI is not the same as interest, because each instalment contains both interest and principal.

Section 123 (old 80C) and related claims

Principal repayment under Section 123

Under the old regime, eligible principal repayment can fall within the combined Section 123 ceiling of ₹1.5 lakh (read with Schedule XV of the new Act). This is not a separate home-loan-only allowance. Employee provident fund contributions, life insurance premiums, ELSS, tuition fees and other eligible items use the same aggregate limit.

If other investments already consume ₹1.5 lakh, additional home-loan principal does not create another Section 123 deduction. Use the annual loan statement to identify principal actually repaid during the tax year.

Principal deductions generally relate to qualifying residential property and are subject to conditions. Interest belongs under Section 22, not Section 123.

Stamp duty and registration charges

Eligible stamp duty and registration expenses may be claimed under Section 123 in the tax year in which they are actually paid, within the same combined ₹1.5 lakh ceiling and subject to ownership and other conditions.

They cannot be spread across future years merely because the Section 123 limit was already used. Preserve the registered deed and payment receipts.

The five-year sale rule under Section 123

Selling the property within five years from the end of the tax year in which possession was obtained can trigger reversal of earlier Section 123 (old 80C) benefits on principal, stamp duty or registration, under the applicable rule. Previously allowed amounts may become taxable in the year of sale.

This clawback is a reason to review tax history before an early sale. It is distinct from capital-gains taxation.

Regime and property-use rules

Old versus new regime for a self-occupied property

The old regime allows the taxpayer to evaluate Section 22 and Section 123 subject to eligibility and limits. The new regime generally disallows self-occupied borrowed-capital interest and deductions such as Section 123.

Do not choose a regime based on the home loan alone. Compare total salary, business income, standard deduction, HRA eligibility, all deductions, surcharge and cess as applicable. The better regime can change from one taxpayer to another.

The new regime is the default regime, but eligible taxpayers may have an option to choose the old regime subject to return and business-income rules. Confirm the choice deadline and filing requirements for your case.

Let-out property treatment

For a let-out property, the tax computation begins with gross annual value, municipal taxes and the standard deduction, then considers eligible interest under Section 22.

Under the old regime, interest on a let-out property is not subject to the same ₹2 lakh property-level ceiling as self-occupied interest. However, the aggregate house-property loss that can be set off against income under other heads in the same year is capped at ₹2 lakh. Eligible unabsorbed loss may generally be carried forward for up to eight tax years for set-off against house-property income, subject to filing rules.

Under the new regime, eligible interest may be considered in computing let-out house-property income, but loss from house property cannot be set off against other heads. Restrictions also affect the practical use of excess loss. Obtain case-specific advice before assuming a large interest deduction will reduce salary tax.

Joint home loan and co-ownership

Being a co-borrower alone is not enough. To claim a deduction, a person should generally be a co-owner, be liable for the loan and actually contribute to repayment. Each eligible co-owner calculates the deduction based on their ownership and repayment share, subject to individual limits and conditions.

A married couple cannot automatically split deductions in whichever ratio produces the lowest tax. Keep the purchase deed, loan documents and bank trail aligned with the claimed share.

The old 80EEA deduction has closed for new loans

Section 80EEA of the 1961 Act (carried into the new Act as Section 131) provided an additional interest deduction of up to ₹1.5 lakh for qualifying affordable-house loans, subject to property value, borrower and sanction-date conditions.

The sanction window ended on 31 March 2022. A loan sanctioned after that date does not become eligible merely because the property price fits the old threshold. Borrowers whose loans were sanctioned during the qualifying window may continue evaluating the deduction over the loan tenure if every condition remains satisfied. It was an additional deduction and could not duplicate interest already claimed under Section 22 (old 24(b)).

Documents and practical limits

Documents to keep

• Lender interest and principal certificate for the tax year.
• Sanction letter and loan account statement.
• Registered sale deed showing ownership shares.
• Possession, completion or occupancy evidence.
• Stamp duty and registration receipts.
• Rent agreement and rent receipts for a let-out property.
• Municipal tax receipts.
• Evidence of each co-owner’s repayment contribution.

Tax benefit should not justify a bigger loan

Interest paid is a real cost. A deduction recovers only part of that cost through lower taxable income, and only when the taxpayer is eligible and can use it. Borrowing an extra ₹10 lakh to obtain a deduction generally leaves the household worse off than avoiding unnecessary interest.

Compare loan offers before tax using compare loan offers. Then apply your realistic tax benefit, including regime choice and annual limits. If you prepay, recalculate future interest through the prepayment calculator.

Sources and further reading

Primary public sources for rules referenced above (verify the current text; circulars and Finance Acts can change):

• Income-tax Act, 2025, as amended by the Finance Act, 2026 (Income Tax Department): house-property interest under Section 22, deductions under Section 123 read with Schedule XV, and the new regime under Section 202. In force from 1 April 2026.
• Press Information Bureau, 1 April 2026: the Income-tax Act, 2025 replaces the 1961 Act without changing underlying tax policy.
• Income Tax Department: taxpayer guidance for the tax year and regime choice.

Model repayment cost on the home loan calculator and the tax benefit tool, then confirm treatment with a qualified tax professional.