Guides / Home Loan Tax Benefits in FY 2026-27: Interest, Principal, Joint Loans and the New Regime

Home Loan Tax Benefits in FY 2026-27: Interest, Principal, Joint Loans and the New Regime

A home loan can save tax, but only in some situations. Under the old tax regime you can claim up to ₹2 lakh on interest for a self-occupied home and up to ₹1.5 lakh on principal repayment, which is ₹3.5 lakh in total. Under the new regime, a self-occupied home gets no home loan deduction at all.

Because the new regime is now the default and has low rates, the big question is no longer "how do I claim my home loan benefit?" but "does the old regime still make sense for me?" This guide answers both, with a worked example for a ₹50 lakh loan.

The benefits at a glance (FY 2026-27)

The Income-tax Act, 2025 came into force on 1 April 2026 and renumbered the sections. The principal deduction known as 80C is now Section 123. The limits are unchanged, so this guide uses the familiar names.

Deduction 1: Interest on the loan

Self-occupied property

You can deduct up to ₹2 lakh a year for interest on a loan for buying, building or repairing your own home. Points to remember:

• You can treat up to two houses as self-occupied. Any further house is treated as let-out.
• The home must be complete. For an under-construction property, you can claim only after you get possession or the completion certificate.
• Pre-construction interest (interest during construction) is claimed in five equal parts starting from the year of completion. It counts within the same ₹2 lakh limit.

Let-out or deemed let-out property

For a rented property the full interest is deductible against the rent. Under the old regime, if the interest is more than the rent and creates a loss, you can set off only up to ₹2 lakh a year of that loss against your other income, and carry the rest forward for 8 years. Under the new regime, you can deduct interest only against the rental income, and the resulting loss cannot be set off against your salary or other income.

Deduction 2: Principal repayment

The principal part of your EMI counts under the ₹1.5 lakh 80C limit, along with EPF, PPF, life insurance and other items. Stamp duty and registration charges also fall within this limit, in the year you pay them.

Two cautions:

1. Your 80C limit is probably already partly used. Many salaried people's EPF contribution alone uses a big part of ₹1.5 lakh, so the principal deduction often adds little.
2. If you sell the house within 5 years of possession, the principal and stamp duty deductions you claimed are reversed and added to your income in the year of sale.

A worked example: ₹50 lakh at 8.5% for 20 years

The EMI is ₹43,391. You can check your own loan in the Home Loan EMI Calculator.

In the early years most of your EMI is interest. In later years most of it is principal.

The table assumes the 30% slab, 4% cess and that nothing else uses your 80C limit.

Notice two things:

1. In year 1 you pay about ₹4.2 lakh in interest and save about ₹62,400 of tax on the interest part. The tax benefit offsets roughly 15% of the interest you pay. A home loan is never "free money".
2. The interest deduction stays capped at ₹2 lakh for roughly the first 14 years, because the actual interest is higher than the cap.

Joint home loans: double the benefit

If you and a co-borrower are both co-owners and both repay the loan, each of you can claim up to ₹2 lakh of interest and ₹1.5 lakh of principal. At the 30% slab, two people each claiming ₹2 lakh of interest save ₹1,24,800 together, compared with ₹62,400 for one.

To claim, remember:

• You must be a co-owner of the property, not just a co-borrower.
• Each person claims in proportion to their share and what they actually pay.
• Both need a copy of the interest certificate and proof of payment.

Joint ownership with a spouse who has a lower income needs thought, because the benefit depends on each person's own tax slab.

Does the old regime make sense because of my home loan?

This is where many people go wrong. The old regime is better only if your total deductions are large. Home loan interest of ₹2 lakh alone is not enough.

For a salaried person earning ₹15 lakh:

With a home loan alone, the new regime still wins at ₹15 lakh. The old regime wins only when you also have large deductions such as HRA. (If you own the home you live in, you usually do not get HRA.) Use the Income Tax Calculator with your real numbers, and read New vs Old Tax Regime.

What about prepaying your loan?

Prepaying reduces your interest, which also reduces your interest deduction. But the interest you save is far larger than the tax you lose. If you pay ₹1 of interest in the 30% slab, you save only about 31 paise of tax. Prepaying a loan always costs you less than paying the interest and claiming the tax benefit.

Since 1 January 2026, the RBI does not allow lenders to charge prepayment fees on floating-rate loans to individuals taken for non-business purposes, for loans sanctioned or renewed from that date. Fixed-rate loans may still have charges, so check your sanction letter. See the Loan Prepayment Calculator and home loan prepayment vs investing.

Documents to keep

1. Interest and principal certificate from the lender for the financial year.
2. Loan sanction letter and repayment schedule.
3. Proof of possession or completion certificate.
4. Sale deed or agreement, with stamp duty and registration receipts.
5. For let-out property: the rental agreement and proof of rent received.

Submit these to your employer, or keep them ready when you file your return.

What has changed over the years

• The extra deduction for first-time buyers of affordable homes (80EEA) is closed to new loans.
• The new regime removed the self-occupied home loan benefit.
• Balance transfers keep your interest deduction as long as the loan stays for the same property. See the home loan balance transfer guide.

Common mistakes

• Claiming before possession. For a property under construction, you cannot claim the interest until it is complete.
• Claiming as a non-owner. A co-borrower who is not a co-owner cannot claim.
• Borrowing more for the tax benefit. The tax saving is small compared with the interest cost.
• Double-counting 80C. The principal comes out of the same ₹1.5 lakh as your other 80C items.
• Forgetting to reverse the claim if you sell within 5 years.

Frequently asked questions

Can I claim a home loan deduction in the new regime?

For a self-occupied home, no. For a let-out home, you can deduct the interest only against the rental income.

I own a house in one city but rent a home in another because of my job. Can I claim both?

Generally yes, under the old regime. A house you cannot occupy because your job is in another place is still treated as self-occupied, so the ₹2 lakh interest deduction can apply, and you can also claim HRA on the rent you actually pay. Keep the rent receipts and loan documents, and check the conditions for your case.

How do I claim the deduction?

Give your employer the interest certificate and declarations so TDS is adjusted, and report the details in your income tax return.

Is the tax benefit on a home loan for a second house?

The first two houses can be self-occupied with a combined ₹2 lakh interest cap. A third house is treated as let-out.

Does the benefit apply to a loan from a friend or relative?

Interest on such a loan can be claimed under conditions and with a certificate, but loans from banks and housing finance companies are simpler to document.

This guide is general information and not tax advice. Rules change, so confirm them or ask a tax professional before you claim.