If you are taking a home loan, part of what you repay each year can lower your income tax. The two main deductions are on the principal you repay and the interest you pay. How much you can claim depends on which tax regime you choose, whether the home is complete, and whether you live in it or rent it out. This guide explains each case.
The deductions below are best known by their section numbers in the Income-tax Act, 1961: Section 80C for principal and Section 24(b) for interest. The Income-tax Act, 2025, which applies from April 2026, renumbers the sections, but banks, employers and most guides still use these names.
The deductions at a glance
| What you pay | Old regime | New regime |
|---|---|---|
| Principal repaid | Up to ₹1.5 lakh (Section 80C, shared with PF, PPF, insurance etc.) | Not allowed |
| Interest: home you live in | Up to ₹2 lakh (Section 24(b)) | Not allowed |
| Interest: home you rent out | Full interest against rent; loss set off against other income up to ₹2 lakh | Against the rent only; no set-off of a loss |
| Stamp duty and registration | Within the ₹1.5 lakh 80C limit, in the year you pay | Not allowed |
1. Principal: up to ₹1.5 lakh
The principal part of your EMI counts towards the ₹1.5 lakh Section 80C limit. The limit is shared with your provident fund, PPF, life insurance, ELSS and children’s tuition fees, so if your PF already uses most of it, the home loan adds little.
- Stamp duty and registration also count, but only in the year you pay them. See stamp duty and registration charges in Pune.
- You must hold the home for five years. If you sell it within five years of the end of the financial year in which you got possession, the principal deductions you claimed are added back to your income.
- Only after completion. The principal deduction starts once construction is complete.
2. Interest on a home you live in: up to ₹2 lakh
Under the old regime, you can deduct up to ₹2 lakh a year of interest on a loan for a home you live in. You can treat up to two homes as self-occupied, but the ₹2 lakh limit is for both together.
Two conditions apply. The loan must be for buying or building the home, and construction must be completed within five years from the end of the financial year in which you took the loan. If it takes longer, the limit drops to ₹30,000 a year, which is a real risk with a delayed project.
3. Interest paid during construction
For an under-construction flat, you cannot claim interest until the home is complete. The interest you paid before completion (the pre-EMI or EMI interest) is added up and claimed in five equal parts, starting in the year construction is completed. Each year’s part counts within the same ₹2 lakh limit. Our guide to payment plans explains pre-EMI.
4. Interest on a home you rent out
If you rent the home out, the rent is taxed, and you can deduct the full interest from it, plus a standard 30% deduction on the rent after municipal taxes. If the interest is more than the rent, the result is a loss:
- Old regime: you can set up to ₹2 lakh of the loss against your salary or other income, and carry the rest forward for up to eight years, to be set against future rent.
- New regime: you can still deduct the interest from the rent, but a loss cannot be set against your salary.
Joint home loans
If you buy with your spouse or a family member and you are both co-owners and co-borrowers, each of you can claim the deductions separately: up to ₹1.5 lakh on principal and ₹2 lakh on interest each, in the share in which you own the home and repay the loan. For a couple both paying tax under the old regime, that can double the benefit. Being only a co-borrower, without a share in the home, is not enough.
Old or new regime?
The new regime has lower tax rates but no deductions for the home you live in. The old regime keeps the deductions but has higher rates. A large interest and principal claim can make the old regime cheaper, especially in the first years of a loan, when most of the EMI is interest. Work out your tax both ways each year. Salaried people can usually switch between regimes each year when filing; those with business income have fewer chances to switch.
Example
Say you take a ₹60 lakh loan for 20 years at 8.5% for a completed flat that you live in. Your EMI is about ₹52,000. In the first year you pay roughly ₹5 lakh of interest and ₹1.2 lakh of principal. Under the old regime you can claim ₹2 lakh of interest and the ₹1.2 lakh principal (if your 80C limit isn’t already used up), a total of ₹3.2 lakh. At a 30% tax rate, that saves close to ₹1 lakh in tax. Use our guide to home loan EMI and eligibility to work out your own numbers.
FAQs
Can I claim home loan interest in the new tax regime?
Not for a home you live in. For a home you rent out, you can deduct the interest from the rent, but not set a loss against your salary.
Can I claim tax benefits on an under-construction flat?
Not until construction is complete. Then the interest paid during construction is claimed in five equal parts.
Can both husband and wife claim on one home loan?
Yes, if both are co-owners and co-borrowers and both pay the EMIs. Each can claim within their own limits.
Is there an extra deduction for first-time buyers?
The extra deductions for first-time buyers (Sections 80EE and 80EEA) applied only to loans sanctioned before April 2017 and March 2022 respectively. They are not available on new loans.
This guide is general information based on the rules as we understand them in October 2026, not tax advice. Tax rules change with each Budget. Check your own case with a chartered accountant before you file.
Cover photo: Baner Hill from Pashan, Pune, India. by Rishabh Tatiraju, CC BY-SA 3.0, via Wikimedia Commons. Cropped, with text added.