1. Work out the interest and principal separately
A home loan instalment generally contains interest and principal. For FY 2025–26 (AY 2026–27), apply the Income-tax Act, 1961 sections below. For tax years beginning 1 April 2026, use the Income-tax Act, 2025, including sections 20–24 for house property, section 123 and Schedule XV for eligible housing payments, sections 130–131 for first-home loan interest, and section 202 for the default regime, and check the corresponding deduction provisions and filing form. Distinguish a deduction in calculating house property income from a deduction against gross total income.
| Historical provision | What it covers | Key limits and conditions |
|---|---|---|
| Section 24(b) | Interest payable on capital used to acquire, construct, repair, renew or reconstruct the property. | Self-occupied interest is generally capped at ₹30,000 or, for qualifying acquisition or construction, ₹2 lakh in aggregate across eligible self-occupied homes in the old regime. Let-out interest is computed without that cap, subject to loss rules. The lender need not always be a bank. |
| Section 80C | Eligible principal or other qualifying purchase/construction payments, stamp duty and registration expenses. | Old regime; shared ₹1.50 lakh overall ceiling. Loan repayments must meet the specified lender rules. Stamp duty and registration are separate qualifying transfer payments where the conditions are met. |
| Section 80EE | Additional eligible acquisition interest on an older first-home loan. | Up to ₹50,000; financial institution loan sanctioned 1 April 2016–31 March 2017, loan up to ₹35 lakh, house value up to ₹50 lakh, and no residential house owned on sanction date. |
| Section 80EEA | Additional eligible acquisition interest where section 80EE does not apply. | Up to ₹1.50 lakh; financial institution loan sanctioned 1 April 2019–31 March 2022, stamp duty value up to ₹45 lakh, and no residential house owned on sanction date. Section 80EEA does not itself impose a carpet-area condition. |
The section 80EE and 80EEA windows are closed to new sanctions. For an eligible historical sanction, verify continuing entitlement, old regime eligibility and unclaimed interest. The same rupee of interest cannot be deducted twice. For section 80C principal, check the exact list of qualifying institutions or employers; an ordinary family loan is outside that list.
2. Interest incurred before acquisition or construction
Separate interest for the period before the financial year of acquisition or completion from interest for the completion year itself. For a loan outstanding through that period, the earlier period normally ends on 31 March before the completion year. Interest ceases to accrue when the relevant loan is repaid, subject to any qualifying refinance. The earlier amount, reduced by any part already allowed under another provision, is spread equally over the completion year and the following four years. Interest for the completion year is treated as current-year interest even if some instalments were paid before the completion date.
Do not claim the pre-construction instalment before acquisition or completion. For section 80C, establish that the payment qualifies for purchase or construction of the residential house in the year claimed; do not treat any advance or under-construction EMI as automatically deductible. In an eligible self-occupied case, the interest cap includes current interest and the annual pre-construction instalment.
3. Old and default new regimes
| Property | Old regime | Default new regime |
|---|---|---|
| Eligible self-occupied home or homes | Nil annual value, with eligible interest within the aggregate ceiling. Principal is tested separately under section 80C. | No self-occupied interest deduction and no section 80C principal deduction. |
| Let-out property with positive income after interest | If net annual value is ₹5 lakh, the 30% standard deduction is ₹1.50 lakh. After ₹2.80 lakh of allowable interest, taxable house property income is ₹70,000. | |
| Let-out property with excess interest | With ₹3 lakh net annual value, the 30% deduction leaves ₹2.10 lakh; subtracting ₹4.50 lakh of interest gives a ₹2.40 lakh loss. Assuming sufficient income under other heads and no other property, up to ₹2 lakh can be set off this year and ₹40,000 carried forward for up to eight years against house property income. | Compute the same ₹2.40 lakh property loss. Eligible same-year netting within the house property head is distinct from a set-off against salary or other heads, which is barred. Apply the default regime’s loss restrictions to any remaining loss; do not count it as a future deduction. |
4. Six worked examples
1. Two equal owners and borrowers
Aditya and Pooja buy a ready ₹1.60 crore Bengaluru apartment with a ₹1.10 crore loan. They own equal definite shares and each bears half the loan payments. In FY 2025–26, ₹8.80 lakh of interest gives ₹4.40 lakh each, restricted to ₹2 lakh each for qualifying self-occupation under the old regime. Principal of ₹3.40 lakh gives ₹1.70 lakh each, capped at ₹1.50 lakh each if both have full room under section 80C. The total deductions are ₹7 lakh if all conditions are met and both can absorb the house property loss. A constant 30% marginal rate plus 4% cess and no surcharge implies an illustrative saving of ₹2,18,400. Being a co-borrower alone does not establish ownership. One co-owner paying all the EMIs does not automatically obtain the other owner’s deduction by signing a declaration; check beneficial ownership, liability and actual funding.
2. Completion in August 2025
Nikhil borrows on 1 July 2022 and acquires the completed flat on 15 August 2025. Interest to 31 March 2025 is ₹1.10 lakh + ₹1.90 lakh + ₹2.20 lakh = ₹5.20 lakh. One-fifth is ₹1.04 lakh, available for five years starting FY 2025–26, subject to the rules for each year. Add ₹1.65 lakh of current interest for ₹2.69 lakh. The eligible old-regime self-occupied cap leaves ₹2 lakh and ₹69,000 outside the deduction. If let out, use the full eligible ₹2.69 lakh in the property computation and apply the applicable loss restrictions.
3. Construction misses the five-year deadline
Sameer borrows on 10 June 2019. Five years from 31 March 2020 ends on 31 March 2025. Assume actual completion, not simply delivery of keys, occurs on 10 November 2025. The higher old-regime self-occupied limit is unavailable; the ordinary ₹30,000 cap applies. A genuinely let-out property is not subject to that self-occupied cap, although the set-off of any resulting loss remains limited. Establish the actual completion date with evidence.
4. Stamp duty and registration
Ritika purchases a completed ₹95 lakh flat in February 2026. Her stipulated payments are ₹5.70 lakh stamp duty and ₹95,000 registration fee, totalling ₹6.65 lakh. They are assumed payments, not a statement of local statutory rates. Under the old regime and assuming full headroom, she can deduct ₹1.50 lakh for FY 2025–26. The unused ₹5.15 lakh cannot be carried forward. For joint ownership, each eligible taxpayer must establish their own payment and available limit.
5. A documented loan from a parent
Varun borrows ₹50 lakh from his father at 7.5% a year and repays ₹25,000 of principal at each month-end. Assume a monthly rate of 7.5% ÷ 12 on each opening balance. Interest starts at ₹31,250 and is ₹29,531.25 in month 12. First-year interest totals ₹3,64,687.50, and principal repaid is ₹3 lakh. The father should report taxable interest under his applicable rules. Varun may claim eligible property interest if he proves the loan and its end use; for an eligible self-occupied home in the old regime, the higher ₹2 lakh ceiling applies. The ₹3 lakh principal repaid to his father does not qualify under section 80C. Retain the agreement, bank trail and lender certificate.
6. Refinancing and an early sale
Karan replaces a 9.6% housing loan with an 8.35% balance transfer. That is a 1.25 percentage-point rate difference; actual savings depend on balances, fees and tenure. CBDT Circular 28 recognises interest on a genuine second loan used to repay the original eligible borrowing. Trace the refinance proceeds and separate any personal top-up. If Karan transfers the house within three years of possession, it is within five years from the end of the possession year. The relevant housing deduction is unavailable in the transfer year, and earlier section 80C housing deductions are added back under section 80C(5). This reversal does not apply to earlier section 24(b) interest deductions.
5. Frequently asked questions
1. Do processing or foreclosure charges qualify?
Section 2(28A) can include charges in respect of borrowing. In DCIT v. Peepul Tree Properties, the Mumbai ITAT considered processing and prepayment charges under section 24(b) on its facts. Establish the charge’s link to qualifying borrowing and distinguish ordinary loan fees from penalties or unrelated charges. The applicable property deduction limit still applies.
2. What about a top-up loan?
Document its end use. Qualifying purchase, construction or repair interest can be tested under section 24(b), with the relevant cap for self-occupied property. Personal spending does not qualify. Section 80C principal has separate eligibility rules; repair or renovation is not automatically eligible. A business borrowing requires a separate business deduction analysis.
3. Can two houses have nil annual value?
Under the historical rules, up to two eligible houses may be selected for nil annual value, subject to the applicable occupancy and letting conditions. The higher interest cap, when available, is aggregate. Other houses outside the selection are assessed under the relevant actual or deemed annual value rules.
4. Can I deduct interest on a vacant plot?
A vacant plot alone is not a house property. Once a qualifying residential building is acquired or constructed, trace the borrowing to the house property and consider eligible prior interest, including where a genuine plot-cum-construction loan financed the completed house. Do not assume that every standalone land loan is deductible.
5. Can a non-resident claim the deductions?
Non-residence alone does not bar the ordinary 30% standard deduction from net annual value or qualifying property interest on an Indian let-out property. The resident and non-resident rules should be checked for the specific provision, and section 80C has separate conditions and regime restrictions.
6. What should I give payroll?
For historical salary withholding, provide Form 12BB where applicable and retain lender particulars and the interest certificate, proof of acquisition or completion, and evidence of ownership and payment shares. Provide the lender identifier required by the applicable form. Use the applicable successor form for a tax year governed by the 2025 Act, and reconcile payroll’s estimate to the final return.
Sources
- Income-tax Act, 1961: section 24
- Income-tax Act, 1961: sections 22–26, 71, 71B, 80C, 80EE, 80EEA and 115BAC
- Income-tax Act, 2025: house property and tax regime provisions
- Income Tax Department: annual value, interest, and CBDT Circular 28 on refinancing
- Income Tax Department house property handbook: refinancing and eligible interest
- Income Tax Department: salaried taxpayers for AY 2026–27 and Form 12BB
- Income Tax Department: non-resident individual return guidance
- ITAT Mumbai: DCIT v. Peepul Tree Properties, on loan processing and prepayment charges (judgment copy)