Home loan tax benefits in 2026

A home loan has two tax questions, and they are not the EMI. One is the interest. For a house you live in, that is section 22(1)(b) of the Income-tax Act, 2025, which was section 24(b). The other is the principal, which can sit in section 123, which was section 80C, inside a cap you share with PPF, PF and ELSS.

Both of those, for a house you live in, are old-regime claims. Section 202 is the new regime, and it is the default for FY 2026-27. It tells you to compute income without section 22(1)(b) for a self-occupied house, and without Chapter VIII except a short list that does not include section 123. If you stay in the new regime, the loan does not reduce your tax. The regime calculator is where you test whether leaving section 202 is worth it. The EMI calculator only splits the payment. It does not know your regime.

A return for FY 2025-26 still uses the old numbers, 24(b) and 80C, because that year is the Income-tax Act, 1961. This page uses the numbers for FY 2026-27. The caps are the ones in the Act text checked on 28 October 2026.

Interest on the house you live in

Section 21(6) takes the annual value of a house as nil when you live in it, or when you cannot live in it, for up to two such houses. Section 22(1)(b) then allows the interest payable on money borrowed to buy, build, repair, renew or rebuild the property.

Section 22(2) caps that interest, together with pre-construction interest, at ₹2,00,000 for those self-occupied houses, if two conditions hold. The house was acquired or built with the borrowed money, and the work was finished within 5 years from the end of the tax year in which the capital was borrowed. You also need a certificate from the person you pay the interest to. The certificate states the interest payable, including interest on a later loan taken to repay the original one.

If those conditions are not met, the cap is ₹30,000, not ₹2,00,000. A house that took six years to finish does not get the higher cap because the loan is large. The Act is explicit.

The cap is on the houses together. Section 22(5) says the deductions under that subsection, for properties of the kind in section 21(6), shall not exceed ₹2,00,000 in total. Two self-occupied houses do not give you ₹2,00,000 twice.

Interest paid before the year the house was completed is not dumped into the first year. Section 22(1)(c) spreads it over 5 equal instalments, starting in the year of completion and running for the next four years. For a self-occupied house, that instalment sits inside the same ₹2,00,000 aggregate. It is not an extra ₹2,00,000.

Interest paid outside India is allowed only if the tax has been deducted, or there is an agent in India, as section 22(6) says. A loan from a relative is not automatically this deduction. The wording is interest on borrowed capital, and the certificate has to come from the person you pay.

The income tax calculator takes one number for this interest and stops it at ₹2,00,000. It applies the number only in the old regime. It does not check the five-year completion test. If your house missed that test, type ₹30,000 or less, not the higher cap.

Principal is a different section

Principal you repay can qualify under Schedule XV, paragraph 1(r), which feeds section 123. The payment has to be for purchase or construction of a residential house whose income is taxed under house property, or which would have been if you had not lived in it.

Paragraph 3 says what counts. Instalments to a development authority or a housing board. Instalments to a company or a co-operative society towards the cost of the house allotted to you. Repayment of money borrowed from the Central or a State Government, a bank including a co-operative bank, LIC, the National Housing Bank, a public company whose main business is long-term housing finance, a company or co-operative that finances house construction, or an employer that is a statutory body, a public company, a public-sector company, a university, an affiliated college, a local authority or a co-operative society. Stamp duty, registration and other transfer expenses also count, in the year you pay them.

What does not count is just as important. The admission fee, the cost of shares, and the initial deposit you pay merely to become a shareholder or a member. The cost of an addition, alteration, renovation or repair after the completion certificate, or after the house has been occupied or let. Any amount that is already allowed under section 22. Interest is that last item. You do not put interest into the principal box.

All of this shares the section 123 cap of ₹1,50,000 with employee PF, PPF, ELSS, life insurance and the rest of Schedule XV. A large principal repayment does not get a private cap. The section 123 guide is the full basket.

If you transfer the house before 5 years from the end of the tax year in which you took possession, the deductions already allowed under this paragraph are treated as income of the year you transfer. The same happens if the sum comes back to you as a refund. People who claim the principal in the year they buy, and sell in the third year, can see those old claims added back.

Section 202 drops section 123. Principal does not reduce tax in the new regime, however large the repayment is.

A rented house is not the same cap

If the house is let, section 21 does not take the annual value as nil. You start from the higher of the reasonable rent and the actual rent, with the vacancy and unrealised-rent rules in that section, then municipal tax you actually paid. Section 22(1)(a) allows 30% of that annual value. Section 22(1)(b) then allows the interest. The ₹2,00,000 cap in section 22(2) is for the self-occupied case in section 21(6). It is not a cap on interest against rent.

That does not mean a let-out loss always reduces your salary. Section 202(2)(b)(ii) says the new regime is computed without setting a loss under house property against any other head. Interest can bring the rental income down. A loss that is larger than the rent does not spill onto salary while you are in section 202. The old regime has its own set-off rules, and this calculator does not compute a let-out property. Do not type let-out interest into the self-occupied box and expect the page to model the rent.

The rent versus buy calculator compares the cost of owning with the cost of renting. It is not a tax return. The prepay versus invest calculator uses the self-occupied interest cap when it counts the tax on interest you no longer pay. Read that page’s own note on the cap before you treat the result as your assessment.

First-time buyer sections that a 2026 loan misses

Two extra interest deductions still exist in the Act. Both are closed to a loan sanctioned now.

Section 130 was section 80EE. An individual can deduct interest on a loan taken to buy a residential house, up to ₹50,000 in a tax year. The loan must have been sanctioned from 1 April 2016 to 31 March 2017. The loan amount cannot exceed ₹35,00,000. The value of the house cannot exceed ₹50,00,000. On the sanction date you must not have owned any other residential house. The lender is a bank or a housing finance company, as section 130(5) defines them. Interest allowed here cannot be allowed again under any other provision.

Section 131 was section 80EEA. It is for an individual who is not eligible for section 130. The deduction is interest up to ₹1,50,000 in a tax year. The loan must have been sanctioned from 1 April 2019 to 31 March 2022. The stamp duty value cannot exceed ₹45,00,000. You must not have owned a residential house on the sanction date. The same interest cannot be deducted twice.

A flat bought in 2026 with a loan sanctioned in 2026 fails both date tests. The price being under ₹45,00,000 does not reopen section 131. “First home” in a bank brochure is not section 130.

If your loan was sanctioned inside one of those windows, and you still pay interest, the section can still apply in FY 2026-27. The years in the Act are the years of sanction, not the years of payment. You still cannot claim the same rupee of interest under section 22 and again under section 130 or 131. In practice the extra section is the interest that did not already fit under section 22. And section 202’s removal of Chapter VIII means these sections, like section 123, are old-regime claims. They are not a way to keep a housing deduction inside the new regime.

There is no third “first-time buyer” section for a loan sanctioned after 31 March 2022 in the text this page was checked against.

What ₹18,00,000 of salary looks like

Take a resident under 60 with salary of ₹18,00,000, living in the house, with the completion test met. The calculator applies the standard deduction, ₹50,000 in the old regime and ₹75,000 in the new one, and the section 156 rebate. No HRA, because this person is not paying rent.

Table: Old and new regime tax at ₹18,00,000 of salary

Interest at the cap cuts the old-regime bill by ₹62,400. Interest and a full principal claim together cut it by ₹1,09,200. The new-regime column does not change. Typing interest of ₹2,40,000, which is above the cap, produces old-regime tax of ₹2,88,600, the same as typing the cap, because the engine stops at ₹2,00,000.

This is one salary. It is not a reason to take a loan. The interest you pay the bank is almost always larger than the tax you save, and in the new regime the tax you save on that interest is zero. A claim is a smaller bill. It is not a discount on the house.

Use the EMI calculator to see how much of each month is interest and how much is principal. Use the prepay calculator if you are deciding whether spare cash should go into the loan or into an investment. Use the rent versus buy calculator if the real question is whether to buy at all. Then put only the allowed interest, and only the allowed principal, into the income tax calculator.

What to keep

The lender’s interest certificate, for the year, naming the interest payable. The principal repayment statement, separate from the interest. The completion date, if anyone might ask whether the five-year test was met. The sanction date, if you think section 130 or 131 still applies. Stamp-duty and registration receipts, in the year you paid them, if you are claiming them inside section 123.

Do not add the EMI. Do not add the same interest in two boxes. Do not claim section 123 or section 22(1)(b) on a self-occupied house if you are staying in section 202. And do not treat a 2026 sanction as a first-time buyer deduction. The windows closed in 2017 and 2022.