Higher Home Loan Interest Deduction

Budget 2026 Expectations: Higher Home Loan Interest Deduction

Explore Budget 2026 expectations for a higher home loan tax benefit and how a home loan interest deduction hike could make housing more affordable

Written by : Knowledge Centre Team

2026-01-31

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6 minutes read

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For many Indian households, owning a home represents long-term security and financial stability. However, rising property prices and higher borrowing costs have made home loans increasingly expensive. As Budget 2026 approaches, expectations are building around enhanced home loan tax benefits, especially a possible increase in the home loan interest deduction

With housing affordability under pressure, taxpayers are looking to the upcoming budget for measures to ease EMIs, support homeownership, and align tax incentives with today’s economic realities. This blog dives deeper into the key expectations for Budget 2026 and explains how potential tax changes could impact homebuyers and borrowers.

Key Takeaways

  • Experts are pushing for the Section 24(b) interest deduction to be raised from ₹2 lakh to ₹5 lakh to reflect current high property prices and interest rates

  • There is a major demand to allow home loan tax benefits under the New Tax Regime to make it more attractive for middle-class homeowners

  • Industry leaders expect the affordable housing price cap to rise from ₹45 lakh to ₹75-85 lakh in metros, ensuring more buyers qualify for tax subsidies

  • Many anticipate the reintroduction of incentives similar to Section 80EEA, providing extra interest deductions for those buying their very first home

  • Stakeholders are advocating for a separate deduction for principal repayments, moving it out of the crowded ₹1.5 lakh Section 80C limit

How Home Loan Tax Benefits Have Lost Relevance Over Time?

To understand why Budget 2026 is being closely watched by homebuyers, it is important to revisit how home loan tax benefits have evolved over the years, and why they now feel inadequate. For a long time, India’s tax system actively encouraged homeownership by offering meaningful deductions on housing loans. However, these incentives have not kept pace with today’s real estate prices and borrowing costs.

Key developments from the past decade highlight this gap:

  • Changes in Section 24(b): The last major revision came in the Union Budget 2014, when the home loan interest deduction for self-occupied properties was increased from ₹1.5 lakh to ₹2 lakh. While this amount was reasonable at the time, it has remained unchanged for nearly 12 years, despite sharp increases in property prices and EMIs.
  • End of Extra Relief for First-Time Buyers: In 2019, the government introduced Section 80EEA, offering an additional ₹1.5 lakh deduction for first-time buyers of affordable homes. However, this benefit was limited to loans sanctioned up to March 31, 2022. Once the window closed, new buyers were left with no additional tax support.
  • Shift Toward the New Tax Regime: Recent budgets have strongly promoted the New Tax Regime, which offers lower slab rates but removes most deductions, including home loan interest benefits. As a result, many taxpayers now face a trade-off between tax simplicity and housing-related tax relief.
  • Rising Property Prices vs. Fixed Tax Limits: Over the past decade, property prices in major cities such as Mumbai, Bengaluru, and Delhi have doubled, or even tripled. In contrast, the ₹2 lakh deduction now covers only a small portion of annual interest payments, especially for loans taken at today’s interest rates.

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Budget 2026 Expectations: Rethinking Home Loan Interest Deductions

As attention turns to Budget 2026, homebuyers and the real estate industry are both advocating for additional tax support on housing loans. As property prices and interest rates rise, existing deductions no longer provide much relief. Experts believe the next budget could be critical to making homeownership more affordable and restoring trust.

Key expectations around home loan interest deduction in Budget 2026 include:

  • Allowing Home Loan Benefits Under the New Tax Regime: Many taxpayers feel constrained by having to choose between lower tax rates and housing-related deductions. Budget 2026 is expected to fill this gap by allowing home loan interest deductions even under the New Tax Regime. This will make owning a home tax-efficient without making compliance more difficult.
  • Proposed 100% Tax Exemption on Rental Income: While previous discussions focused on interest deductions, experts are now pushing for a direct 100% tax exemption on rental income up to ₹3 lakh for properties valued up to ₹50 lakh. Currently, rental income is taxed according to an individual's income slab after a standard 30% deduction, which often results in low net yields of only 1–3%. Industry leaders argue that this specific exemption would incentivise investors to buy and rent out smaller units, directly addressing the severe shortage of affordable rental stock in metro cities.
  • Renewed Support for First-Time Homebuyers: There is a growing expectation that the government may reintroduce a focused benefit similar to Section 80EEA. A refreshed version could offer additional interest deductions for first-time buyers, especially younger professionals struggling with high property prices and limited tax relief.

    If these measures are introduced, Budget 2026 could significantly ease the financial burden of home loans and reaffirm housing as a core pillar of India’s economic growth
trivia-img

Did You Know?

The home loan interest deduction limit under Section 24(b) has not been updated since 2014, despite property prices doubling


Source: Financial Express

Cut Tax Stress 46,800

Redefining "Affordable Housing" for the Modern Taxpayer

Even though property prices have increased a lot in cities, the meaning of "affordable housing" has mostly remained the same over the years. The current price limit of ₹45 lakh no longer shows market realities, especially in cities and towns. Budget 2026 is likely to fill this gap by changing the definition to better align with the needs of today's homebuyers.

Key expectations around redefining affordable housing include:

  • Revising the Property Price Threshold: One of the most anticipated changes is that the price limit will rise from ₹45 lakh. Experts say that the limit should be raised to about ₹75 lakh for Tier-2 cities and up to ₹1 crore for metro cities. This would make it possible for a larger section of middle-class families to get tax advantages and other benefits for buying a home.
  • Updating Carpet Area Norms: The current limits on carpet area were set when housing needs were different. Families need more space to live nowadays, with working from home and hybrid work becoming more common. Budget 2026 might raise the limits on carpet area to better fit modern lifestyles without taking away buyers' tax benefits.
  • Aligning Tax Benefits with Real Market Conditions: The government can make sure that tax benefits and subsidies are still useful, relevant, and easy to get by redefining affordable housing. This alignment would promote real homeownership instead of restricting benefits to outdated price ranges.

    If implemented, these changes could significantly expand access to housing benefits and make the dream of owning a home more realistic for modern taxpayers.

Why Real Estate Relief Matters?

Increasing the home loan tax benefit is not just about helping individuals; it is a strategic move for the entire national economy.

  • Employment Generation: The construction sector is the second-largest employer in India after agriculture. A surge in home buying directly translates to millions of jobs for skilled and unskilled labourers.

  • Demand for Allied Industries: When a house is built and sold, it creates demand for various sectors, including steel, cement, paints, electrical fittings, and furniture. By boosting the home loan interest deduction, the government will effectively be stimulating the manufacturing sector.

  • Credit Growth: A robust housing market ensures a healthy flow of credit from banks and NBFCs, which is vital for a thriving financial ecosystem.

Conclusion

The Union Budget 2026 stands at a critical juncture. As India moves closer to becoming the world's third-largest economy, the aspirations of its citizens are scaling new heights. A home is no longer just a place to live; it is an asset that boosts spending, increases personal wealth, and supports social security. By addressing the long-standing demand for a higher home loan interest deduction, the government can bridge the gap between rising property costs and stagnant income growth.  Ultimately, a nation that owns its homes is a nation that is invested in its own future.

Glossary

  1. Section 24(b): A provision in the Income Tax Act that allows a deduction of interest paid on home loans from taxable income
  2. Carpet Area: The actual usable area within the walls of an apartment, excluding common areas and the thickness of inner walls
  3. Affordable Housing: A category of housing defined by the government based on specific price caps and carpet area measurements
  4. Section 80EEA: A former tax provision providing extra deductions for first-time homebuyers, currently sought for reintroduction
  5. EMI: Equated Monthly Instalment; a fixed monthly payment made by a borrower to a lender to repay both principal and interest
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FAQs

As per the current tax laws (under the Old Tax Regime), the maximum deduction for interest paid on a home loan for a self-occupied property is ₹2 lakh per financial year under Section 24(b). If the property is let out, there was previously no limit, but it is now capped against other income heads.

Currently, most deductions, including the home loan interest deduction under Section 24(b) and principal repayment under Section 80C, are not available under the New Tax Regime. However, one of the biggest expectations for Budget 2026 is the introduction of these benefits in the New Regime.

Section 24(b) allows you to deduct the interest component of your home loan EMI (up to ₹2 lakh). Section 80C allows you to deduct the principal component of the EMI (up to ₹1.5 lakh, clubbed with other investments like PPF).

Currently, the additional benefit under Section 80EEA (up to ₹1.5 lakh) is only available for those whose loans were sanctioned before March 31, 2022. Many expect Budget 2026 to reintroduce a similar scheme to help young professionals buy their first homes.

When interest rates are high, a larger portion of your EMI goes toward interest. If your annual interest payment is higher than the current ₹2 lakh limit, you are paying tax on the excess amount. A higher deduction limit would allow you to save more tax during periods of high interest rates.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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