The Crucial First Choice: Old vs. New Tax Regime
Before diving into specific deductions, your most important decision is choosing between the old and new income tax regimes. For the Assessment Year 2026-27, the new tax regime is the default option and offers lower tax rates but gives up most deductions, including
those for home loans on self-occupied property. The old tax regime has higher slab rates but allows you to claim the full suite of home loan benefits. For most individuals with a home loan, the deductions offered by the old regime often result in lower overall tax liability, making it the preferred choice. All deductions mentioned below are applicable only if you opt for the old tax regime.
Deduction on Principal Repayment: Section 80C
The principal portion of your EMI is your first avenue for tax savings. Under Section 80C of the Income Tax Act, you can claim a deduction of up to ₹1.5 lakh per financial year on the principal amount you repay. However, this is a shared limit. The ₹1.5 lakh cap includes other popular investments like Public Provident Fund (PPF), Employee Provident Fund (EPF), and ELSS mutual funds. If your other 80C investments are already high, your capacity to claim the principal repayment may be limited. Also, note that you cannot sell the property within five years of possession; doing so will reverse the tax benefits you've claimed.
Deduction on Interest Payment: Section 24(b)
This is often the most significant tax benefit for homeowners. Section 24(b) allows you to claim a deduction on the interest paid on your home loan. For a self-occupied property, the maximum deduction is capped at ₹2 lakh per year. To claim this full amount, the loan must be for the purchase or construction of a property, and this must be completed within five years from the end of the financial year the loan was taken. If construction takes longer, the deduction limit falls to just ₹30,000. For properties that are rented out, the entire amount of interest paid during the year can be claimed as a deduction against the rental income.
Bonus for First-Time Buyers: Section 80EEA
Section 80EEA offered an additional deduction of up to ₹1.5 lakh on interest for affordable housing, which was a major boon for first-time buyers. However, this benefit is only applicable for home loans sanctioned between April 1, 2019, and March 31, 2022. If you took a loan within this specific window and meet the other criteria (like property value under ₹45 lakh), you can continue to claim this benefit in 2026 over and above the ₹2 lakh limit under Section 24(b). No new loans sanctioned after March 2022 are eligible for this particular deduction.
One-Time Benefit: Stamp Duty and Registration
The costs associated with registering your new home are also tax-deductible. The stamp duty and registration charges you pay can be claimed under Section 80C. This claim is part of the overall ₹1.5 lakh limit of Section 80C and can only be claimed in the financial year the expenses were actually paid. It is important to remember that this deduction is generally applicable only to the purchase of a new property and not for resale properties.
Power of Two: Benefits on a Joint Home Loan
If you have taken a joint home loan with a spouse or family member, the tax benefits can be multiplied. As long as both individuals are co-owners of the property and co-borrowers on the loan, each person can independently claim deductions up to ₹1.5 lakh under Section 80C and ₹2 lakh under Section 24(b). This effectively allows a household to claim a total deduction of up to ₹7 lakh, significantly boosting tax savings. Both co-borrowers must have their own source of income to make the claims.
