Home Loan Tax Benefits Under the New Income Tax Act — Complete Guide

Home Loan Tax Benefits Under the New Income Tax Act

A home loan comes with two distinct tax benefits — one for the interest you pay, one for the principal you repay — and both work very differently depending on whether the property is self-occupied, let out, or under construction.

Interest Deduction (Successor to Section 24(b))

For a self-occupied property, this deduction is not available under the new tax regime. For a let-out property, interest is deducted while computing “Income from House Property,” and this computation continues to apply under both regimes — though a resulting loss from house property cannot be set off against other income heads under the new regime (it can only be carried forward and set off against future house property income).

Principal Repayment (Successor to Section 80C, now Section 123)

•             Included within the overall ₹1,50,000 Section 123 limit (shared with PPF, ELSS, insurance, etc.)

•             Available only under the old tax regime

•             Applies to principal repaid on a housing loan taken for purchase or construction of a residential property

Pre-Construction Interest

Interest paid before the property is completed (during construction) isn’t lost — it can be claimed in five equal instalments starting from the year the construction is completed, subject to the same ₹2,00,000 self-occupied cap.

Joint Home Loans

If a property and loan are jointly held (e.g., by spouses), each co-owner can claim the interest and principal deduction separately, up to their respective limits — effectively doubling the combined household deduction, provided both are co-borrowers and co-owners, and both are opting for the old regime.

Worked Example

A couple takes a joint home loan for a self-occupied flat, paying ₹3,50,000 in interest and ₹1,20,000 in principal for the year, with a 50:50 ownership share.

•             Each spouse can claim up to ₹1,75,000 interest, capped at ₹2,00,000 each (so the full ₹1,75,000 is allowed for each)

•             Each spouse can claim ₹60,000 principal repayment within their individual Section 123 ₹1.5 lakh limit

•             Combined household benefit: ₹3,50,000 interest deduction (fully utilized) + ₹1,20,000 principal deduction

Frequently Asked Questions

Q1. Can I claim home loan interest deduction under the new tax regime? Only for a let-out (rented) property — self-occupied property interest deduction is not available under the new regime.

Q2. What happens to unused pre-construction interest if I sell the property before claiming all five instalments? Any remaining unclaimed instalments are generally forfeited upon sale — they cannot be claimed by the buyer or carried forward beyond the ownership period.

Q3. Can I claim both HRA and home loan interest deduction in the same year? Yes, in specific situations — for example, if you own a house in one city but rent accommodation in another city for work, both benefits can potentially apply, subject to genuine facts.

Reflects the rules applicable for Tax Year 2026-27 under the old tax regime (except let-out property interest, which applies under both regimes).