Home Loan Tax Benefits Under the New Income-tax Act, 2025: Old vs New Regime

The Income-tax Act, 2025 replaced the 1961 Act from 1 April 2026, starting with tax year 2026-27. The home loan tax benefits most families use are still there, but the section numbers have changed, and whether you can claim them depends on the tax regime you choose. Here is a plain-language summary.

What changed and what didn't

The older first-time buyer deduction (section 80EEA) applied only to loans sanctioned between 1 April 2019 and 31 March 2022 and is closed for new loans.

Interest on a self-occupied home

• Deduction up to ₹2,00,000 a year if the loan was for buying or constructing the house and construction was completed within five years from the end of the tax year in which you borrowed
• Otherwise the cap is ₹30,000
• Keep the lender's interest certificate each year

Principal repayment

• Principal repaid, plus stamp duty and registration in the year paid, counts towards the ₹1.5 lakh limit under section 123
• The limit is shared with other eligible items such as EPF, PPF, ELSS and life insurance
• If you sell the house within five years from the end of the tax year you got possession, the deduction already claimed is reversed

Let-out property

• Rental income is taxed after a 30% standard deduction on the annual value
• Interest on the loan is deductible in full
• Under the old regime, a resulting loss can be set off against other income up to ₹2 lakh a year, with the rest carried forward for up to eight years against house property income

Old regime vs new regime

The new regime is the default. To claim home loan deductions on a self-occupied house you must opt for the old regime. Which is better depends on your income and your other deductions, so compare both every year with your tax adviser.

Home loan tax benefit in the new tax regime

This is the question we are asked most. In short:

• Self-occupied home: no deduction for interest or principal under the new regime
• Let-out home: interest is still deductible against the rent you receive, but if it creates a loss, that loss is simply lost: it cannot reduce your salary or business income and cannot be carried forward
• Section 123 (principal): not available under the new regime

So under the new regime a home loan saves tax only on a rented property. If you live in the house and pay large interest, work out your tax under both regimes before you choose. Salaried people can switch every year; people with business income have limited chances to switch back.

Interest paid before the house is ready

If you pay EMIs or pre-EMI interest while the house is under construction, you cannot claim that interest in those years. Add it up, and once construction is complete you can claim it in five equal parts over the next five years, starting with the year of completion. For a self-occupied home, this amount sits inside the same ₹2 lakh yearly limit under the old regime.

Tax benefit on a plot loan

A loan only for buying land is the most common surprise:

• Plot alone: no deduction for interest or principal while it is just land
• When you build a house on it: interest on the plot loan and the construction loan is generally treated as interest paid before completion, and can be claimed in five parts once the house is ready, within the limits above
• Principal: the construction part counts under section 123 after completion; the land part usually does not
• Build within five years from the end of the tax year you borrowed to keep the full ₹2 lakh interest limit

Many banks in Uttarakhand offer a combined plot + construction loan, which keeps the paperwork and the tax claim simpler. Check the exact treatment of your loan with your tax adviser before you file.

Joint home loans

If a home is jointly owned and both owners are co-borrowers paying the EMI, each can usually claim deductions within their own limits under the old regime, in proportion to their share. This can double the family's total benefit.

Keep these records

• Annual interest and principal certificate from the lender
• Possession or completion certificate
• Stamp duty and registration receipts
• For let-out property: rent agreement and rent receipts

Plan the loan with tax in mind

Tax benefits are a bonus, not a reason to borrow more than you can repay. Start with the right loan and EMI: use our home loan EMI calculator, check whether you qualify for PMAY-Urban 2.0, and keep our documents checklist ready.

Planning a home loan? We help you choose the lender and loan structure, including joint loans, so you get the most from both the loan and the tax rules. For tax filing, consult your tax adviser.

Summary based on the Income-tax Act, 2025 as in force from 1 April 2026. This is general information, not tax advice.