Home Loan Tax Deductions Under the New Income Tax Act 2025: Complete Guide for FY 2026-27
A housing loan stands among the rare financial obligations that simultaneously builds personal wealth and reduces tax liability. For assessees servicing a home loan during FY 2026-27, the New Income Tax Act, 2025 offers structured deductions on both the interest and principal components of the EMI — but exclusively under the old tax regime for most of these benefits. Understanding precisely which provision applies to which component, and how much relief is genuinely available, is fundamental to effective tax planning.
This guide presents a comprehensive walkthrough of every home loan-related tax benefit available in FY 2026-27, covering the applicable provisions under both the Income Tax Act, 1961 and the Income Tax Act, 2025, the regime-wise applicability, and practical illustrations with real numbers.
Overview: Deduction Mapping Across Both Acts
The table below captures the cross-reference between provisions under the Income Tax Act, 1961 and the Income Tax Act, 2025, along with the nature of deduction, the maximum permissible limit, and the regime under which each benefit is available:
| Nature of Deduction | IT Act, 1961 | IT Act, 2025 | Maximum Deduction | Regime Applicability |
|---|---|---|---|---|
| Interest – Self-Occupied Property | Section 24(b) |
Section 22(1)(b) & Section 22(1)(c) |
Rs. 2,00,000 per annum | Old Regime Only |
| Interest – Let-Out Property | Section 24(b) |
Section 21 |
Actual interest (no ceiling) | Both Old and New Regime |
| Principal Repayment | Section 80C |
Section 123 |
Up to Rs. 1,50,000 (within aggregate limit) | Old Regime Only |
| Additional Interest Deduction | Section 80EEA |
Section 131 |
Rs. 1,50,000 over and above Section 22(1)(b) |
Old Regime Only (loan sanctioned on or before 31st March 2022) |
Deduction on Interest Component: House Property Head
Section 22(1)(b) and Section 22(1)(c) – Self-Occupied Property
Under the Income Tax Act, 2025, the aggregate deduction permissible for interest on borrowed capital in respect of self-occupied properties is governed by Section 22(1)(b) and Section 22(1)(c). The deduction is structured as follows:
Case 1 – Deduction of Rs. 2,00,000
This higher limit is available subject to the following conditions being satisfied:
- The property must have been acquired or constructed using borrowed capital.
- Such acquisition or construction must be completed within five years from the end of the tax year in which the capital was originally borrowed.
- The assessee must furnish a certificate from the lender specifying the amount of interest payable on the borrowed capital.
Case 2 – Deduction of Rs. 30,000
In all other circumstances — where the above conditions are not met — the permissible deduction is limited to Rs. 30,000.
Important Notes under Section 22:
- Pre-construction interest is deductible in five equal annual instalments commencing from the previous year in which construction is completed.
- Where a property is partially let out and partially self-occupied, income from each portion is computed independently under the respective rules.
- The deduction under
Section 22(1)(c)must be computed after reducing the interest by any amount already claimed as deduction under any other provision of the Act.