Budget 2026: Big Relief for Home Loan Borrowers! Interest Benefit will continue on Home Loan
Finance Minister Nirmala Sitharaman announced big relief for home loan borrowers in Budget 2026.
She said that taxpayers will continue to get income tax deduction on home loan interest, even if the house is under construction or the borrower has not yet moved into the house.
This benefit already exists under the Income Tax Act, 1961. However, the new Income Tax Act, 2025, which will come into effect from 1 April 2026, did not clearly mention this provision. Because of this, many taxpayers were confused about whether the benefit would continue.
To remove this confusion, Sitharaman announced that the government will amend Section 22(2) of the Income Tax Act, 2025. This amendment will ensure that home loan borrowers continue to get tax relief.
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Under the Income Tax Act, 1961, taxpayers can claim deduction on home loan interest even during the period when the house is not completed. This period starts from the date the bank disburses the loan and continues until the construction is completed or the property is acquired. This period is called the pre-construction period.
The law allows taxpayers to claim deduction for interest paid during this pre-construction period as well.
For example, suppose a borrower took a home loan in 2021. Due to delays, the construction of the house was completed only in 2026. During these four years, the borrower paid EMIs but could not move into the house.
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Assume the borrower paid a total interest of ₹3 lakh from 2021 to 2025. This ₹3 lakh is called pre-construction interest.
As per the law, this amount must be divided into five equal parts. So, ₹3 lakh divided by 5 comes to ₹60,000 per year.
In 2026, when the borrower finally moves into the house, he can claim:
- ₹60,000 as one-fifth of the pre-construction interest, and
- the interest paid during 2025–26, say ₹2 lakh.
So, the total deduction becomes ₹2,60,000.
However, the maximum deduction allowed for a self-occupied house is ₹2 lakh. Therefore, the borrower can claim only ₹2 lakh.
The pre-construction interest is divided into five parts because the Income Tax Act allows this deduction in five equal instalments, starting from the year the house is completed.
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For a self-occupied house, the maximum interest deduction allowed in one financial year is ₹2 lakh.
Important conditions:
- The home loan must be taken for a self-occupied property.
- The loan must be sanctioned on or after 1 April 1999.
If a property is acquired or constructed using borrowed money, the interest paid before the year of completion is allowed as deduction. This deduction is spread equally over five years, starting from the year the house is completed.
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