Budget 2026: Calls grow to revamp housing tax benefits

Budget 2026 may revamp home-loan tax rules as outdated caps, lapsed benefits, and 80C limits strain borrowers, making reforms vital for housing affordability

India’s housing market is witnessing renewed momentum with falling home-loan rates, rising demand from younger buyers, and a steady revival in residential sales. Yet, the tax framework governing home loans has not kept pace with these changes, leaving borrowers grappling with outdated provisions in the Income-tax Act.

One of the most pressing issues concerns under-construction properties. Buyers begin paying EMIs immediately, but tax deductions on interest are deferred until construction is completed. Current rules allow such deductions only in five equal instalments starting from the year of possession. With project delays common, borrowers often face years of financial strain, paying EMIs and rent simultaneously without tax relief.

Another challenge is the Rs 2 lakh annual cap on interest deductions for self-occupied homes, unchanged since 2015. With property prices and loan sizes having surged, this limit is widely seen as inadequate. If construction is not completed within five years, the deduction shrinks further to Rs 30,000, a figure that no longer reflects market realities.

The lapse of the additional Rs 1.5 lakh deduction for affordable housing in 2022 has also hurt first-time buyers. Experts argue that reinstating section 80EEA could encourage purchases in the sub-Rs 45 lakh segment, particularly as India’s under-35 population continues to drive housing demand.

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Borrowers relying on private loans face further disadvantages. While interest payments qualify for deductions, principal repayments do not fall under section 80C, leaving them excluded from key benefits. Calls have grown to extend 80C coverage to loans from non-banking sources.

Even for bank-financed loans, section 80C remains restrictive. The Rs 1.5 lakh cap must be shared with PPF, EPF, ELSS, and insurance premiums, limiting relief for housing-loan principal. Experts recommend carving out a separate Rs 1.5 lakh limit or raising the threshold to Rs 2.5 lakh.

The new tax regime compounds these challenges by denying deductions for both interest and principal repayments, prompting many salaried individuals to reconsider its benefits.

With housing central to financial security and economic growth, stakeholders argue that Budget 2026 must modernize home-loan tax rules. Updating deduction caps, reinstating affordable housing incentives, and easing restrictions could provide meaningful relief to borrowers while strengthening the housing sector’s role in India’s development.

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