Many Bengaluru buyers take a home loan partly for the tax break, having heard that a loan saves tax. That is still true, but a change most buyers have not fully absorbed has quietly narrowed the benefit. The familiar deductions on home loan interest and principal now live only in the old tax regime, and the new regime, which is the default for most taxpayers, does not offer them for a self occupied home. So the first tax question about a home loan in 2026 is not how much you can claim, but which regime you are even in.

The short answer. Section 24(b) allows a deduction of up to 2 lakh rupees a year on home loan interest for a self occupied property, and Section 80C allows up to 1.5 lakh rupees a year on the principal repayment, but both are available only under the old tax regime. Under the new regime, these deductions are not available for a self occupied home, which is the trade off buyers must weigh. Choosing the old regime to claim them only makes sense if your total deductions beat the lower slab rates of the new regime.

The two numbers to hold are 2 lakh and 1.5 lakh, the caps on interest and principal. Everything else is about whether the regime you sit in lets you use them.

What does Section 24(b) allow on home loan interest?

Section 24(b) of the Income Tax Act lets you deduct the interest you pay on a home loan from your taxable income, up to 2 lakh rupees a year for a self occupied property. This is the larger of the two home loan deductions and the one that does most of the work in the early years of a loan, when the interest portion of your EMI is at its highest. The cap is per financial year, not per loan, and it applies to the interest component only, separate from the principal. For a self occupied home under the old regime, this deduction is the core of the tax case for borrowing. Read the official position on the Income Tax Department portal rather than a lender brochure.

What does Section 80C cover, and why is it crowded?

Section 80C allows a deduction of up to 1.5 lakh rupees a year, and the repayment of home loan principal is one of the items that qualifies. The catch is that 80C is a crowded basket. The same 1.5 lakh limit also covers provident fund contributions, life insurance premiums, certain tuition fees, tax saving deposits and more, so your home loan principal shares the cap with these. For many salaried buyers, provident fund alone already eats a large part of the 80C limit, which means the principal repayment may deliver less additional benefit than the headline suggests. Treat 80C as a shared allowance, not a fresh one your home loan unlocks in full.

Why does the old versus new regime choice decide everything?

The new tax regime offers lower slab rates but strips out most deductions, including the home loan interest and principal benefits for a self occupied home. The old regime keeps the deductions but taxes at higher slab rates. So the home loan tax benefit is not free money, it is a reason to consider staying in the old regime, and that only pays off if your combined deductions, home loan interest, 80C, and others, save more tax than the new regime lower rates would. For a buyer with a large loan and a full 80C, the old regime often wins. For a buyer with a small loan and few other deductions, the new regime lower rates can leave you better off even without the home loan break. The honest answer is that it must be calculated for your numbers, not assumed.

How are under construction and let out homes treated?

The treatment differs in ways that catch buyers out. For an under construction home, the interest you pay before completion, the pre construction interest, is not deductible in those years directly, but can be claimed in five equal instalments starting from the year construction is completed, within the overall 2 lakh cap for a self occupied property. For a let out property, the interest is not capped at 2 lakh in the same way, but the loss from house property that you can set off against your other income in a year is limited to 2 lakh, with the rest carried forward. These distinctions matter when you are buying under construction, where your possession is staged, a subject we cover in our guide to home loan sanction and disbursement stages.

What about the older 80EEA benefit?

Buyers still read about an additional 1.5 lakh deduction under Section 80EEA, and it is important to be accurate. That benefit applied to home loans sanctioned within a defined window that closed on 31 March 2022, so it is not available for fresh loans taken now. Presenting it as a current benefit would overstate the tax case for a 2026 purchase. If your loan was sanctioned within the earlier window and you qualified then, you may continue to claim it, but a new buyer should plan on Section 24(b) and Section 80C alone and treat 80EEA as history rather than a live option.

How should a Bengaluru buyer plan the tax side?

Start by estimating your first year interest, since that is where the 2 lakh cap is most likely to be fully used, then map your 80C to see how much room the principal actually has after provident fund and insurance. Run both regimes for your income and deductions, because the right choice depends on the size of your loan and your other claims. Remember that the tax benefit reduces the effective cost of borrowing but should never be the reason to borrow more than you comfortably can, since the interest you pay to claim a deduction always exceeds the tax you save. The related question of tax when you eventually sell is covered in our guide to capital gains tax on selling property.

Home loan deductions at a glance

Seven point home loan tax checklist

1. Estimate your first year interest to see how much of the 2 lakh cap you will use.
2. Map your 80C to check how much room the principal has after provident fund and insurance.
3. Run both the old and new regimes for your income and deductions before deciding.
4. For an under construction home, note the pre construction interest is claimed over five years.
5. For a let out home, remember the house property loss set off is capped at 2 lakh a year.
6. Do not rely on Section 80EEA for a fresh loan, since that window has closed.
7. Treat the tax benefit as a discount on borrowing, not a reason to borrow more.

Frequently asked questions

How much home loan interest can I deduct in 2026?

Under Section 24(b), you can deduct up to 2 lakh rupees a year on home loan interest for a self occupied property, but only under the old tax regime. The new regime does not allow this deduction for a self occupied home, so the benefit depends on the regime you choose.

Is the principal repayment deductible separately?

Yes, under Section 80C, up to 1.5 lakh rupees a year, and only under the old regime. However, 80C is a shared limit that also covers provident fund, insurance and other items, so the principal often uses only the room left after those, rather than a fresh 1.5 lakh.

Can I claim home loan deductions under the new tax regime?

For a self occupied home, the interest and principal deductions are not available under the new regime. Buyers who want to claim them generally need to opt for the old regime, which makes sense only if the total deductions save more tax than the new regime lower slab rates.

Is the extra 80EEA deduction still available?

No, for fresh loans. Section 80EEA applied to home loans sanctioned within a window that closed on 31 March 2022, so a new buyer cannot claim it. Those who qualified within the earlier window may continue, but a 2026 purchase should plan on Section 24(b) and 80C alone.

Last updated 2026-07-03. PropNewz Team.