Home loan tax benefits: sections 80C and 24(b), now 123 and 22

3.6.1 What home loan tax benefits can a flat buyer claim?

A flat buyer with a home loan can claim two income tax deductions: one for the interest and one for the principal. Both come from the Income-tax Act, 2025, which applies from 1 April 2026 under section 1(3). The interest deduction is in section 22. The principal deduction is in section 123, read with paragraph 1(r) of Schedule XV. Many guides still use the older names from the Income-tax Act, 1961: section 24(b) for interest and section 80C for principal. Section 536 repeals the 1961 Act but keeps it for tax years that began before 1 April 2026. For a self-occupied home, both deductions apply only if you choose the old tax regime. The new tax regime in section 202 is the default. It removes the principal deduction and the current interest deduction for that home. So a tax saving is a possible result that you must check, not money you can count in your budget. Confirm your figures with a tax adviser before you plan your down payment or EMI around a saving.

What you pay	Income-tax Act, 2025 (tax years from 1 April 2026)	Income-tax Act, 1961 name	Limit in the 2025 Act
Interest on the home loan	Section 22(1)(b) and 22(2)	Section 24(b)	₹2,00,000 a year for self-occupied homes, including any prior-period instalment, or ₹30,000 if the conditions fail
Interest before possession	Section 22(1)(c)	Not checked by Sachi	Five equal yearly instalments. For a self-occupied home, these count inside the same ₹2,00,000 or ₹30,000 cap
Principal repayment, stamp duty, registration fee	Section 123 and Schedule XV, paragraph 1(r)	Section 80C	₹1,50,000 a year, shared with other Schedule XV items

3.6.2 How much home loan interest can you deduct under section 22?

On a self-occupied flat, you can deduct up to ₹2 lakh of home loan interest a year under section 22(2)(a). Section 21(6) treats a home that you live in, or cannot live in for any reason, as having an annual value of nil. Section 21(7) allows this for two houses at most, and section 22(5) caps the interest on those houses together at ₹2 lakh. The ₹2 lakh limit has two conditions. First, the loan must be for acquiring or constructing the house. The work must also complete within five years from the end of the tax year in which you borrowed. Second, you must have a certificate from the lender that states the interest payable. If either condition fails, section 22(2)(b) reduces the limit to ₹30,000. Both limits also include any prior-period interest instalment. A loan for repair or renewal also falls in this ₹30,000 case. For a let-out flat, section 22(2) sets no cap on the interest. The table shows the cases.

Your situation	Interest limit per tax year (old regime)	Section
Self-occupied, loan to buy or build, completed within five years, lender certificate available	₹2,00,000, including any prior-period instalment	22(2)(a)
Self-occupied, any other case (late completion, no certificate, repair loan)	₹30,000, including any prior-period instalment	22(2)(b)
Two self-occupied houses together	₹2,00,000 in total, including prior-period instalments	22(5)
Let-out flat	No cap in section 22	22(1)(b) and (c)

3.6.3 What happens to interest you pay while the flat is under construction?

Interest that you pay before the flat is complete is not lost, but you cannot claim it in the year you pay it. Section 22(1)(c) calls it interest for the “prior period”. You deduct it in five equal instalments. The first instalment falls in the tax year in which you acquire the flat or construction completes. The next four fall in the four tax years after that. Section 22(3) reduces this amount by any part that you already claimed under another provision. For a self-occupied flat, each instalment counts inside the same yearly cap as your current interest. Section 38 of the Finance Act, 2026 amended section 22(2) so that the cap covers section 22(1)(b) and (c) together. This change is in force from 1 April 2026. So ₹2 lakh, or ₹30,000, is the limit for both amounts added together. For a let-out flat, section 22 sets no cap.

For example, assume that your current interest on a self-occupied flat is ₹1,80,000 and your prior-period instalment is ₹50,000. The total is ₹2,30,000, but the deduction stays at ₹2,00,000. A late completion also affects the five-year completion condition in section 22(2)(a). If the flat completes after that limit, your yearly cap drops to ₹30,000. Keep the lender’s interest figures for each construction year, because you claim them later.

3.6.4 How does principal repayment count under section 123?

Principal repayment on a home loan counts toward the section 123 deduction, which has an overall limit of ₹1.5 lakh a year. Section 123 allows an individual a deduction for the total of the payments listed in Schedule XV, up to ₹1,50,000. Paragraph 1(r) of Schedule XV covers payments for the purchase or construction of a residential house. Paragraph 3(a)(iii) lists the lenders whose loan repayment counts. They include the Central or a State Government, any bank (including a co-operative bank), the LIC and the National Housing Bank. A loan from a friend or relative is not on that list. Paragraph 3 also includes the stamp duty, registration fee and other transfer expenses that you pay. For a Bangalore flat, the year you register the sale deed can therefore use part of the limit. The limit is shared with other Schedule XV items, for example provident fund, life insurance premiums and tuition fees. Paragraph 3(b) excludes renovation or repair costs after the completion certificate or occupation.

The list in paragraph 3(a)(iii) also covers three other lender types. The first is a public company whose main business is long-term housing finance and that is eligible under section 32(e). The second is a company in which the public are substantially interested, or a co-operative society, that finances house construction. The third is certain employers. These include a body set up under a Central or State Act, a public company or a public sector company. They also include a university, an affiliated college, a local authority or a co-operative society. Check with your lender which item it falls under.

Paragraph 4 of Schedule XV can reverse the deduction in two cases. First, you transfer the flat before five years from the end of the tax year in which you got possession. Second, you receive back any sum that you claimed, by refund or otherwise. A builder refund after you cancel a booking is one example. In either case, the deductions you took become your income in that tax year. Section 536(2)(h), as substituted by section 122 of the Finance Act, 2026, keeps the same rule for section 80C claims made under the 1961 Act. Ask a tax adviser how principal that you repay before possession is treated.

3.6.5 Do the old and new tax regimes treat a home loan differently?

Yes. For a self-occupied home, the new tax regime removes the current interest and principal deductions, and the old regime keeps them. Section 202(1) sets the new regime rates, and it applies unless you choose otherwise. Section 202(2)(a)(v) removes the section 22(1)(b) interest deduction for self-occupied homes. Interest on a let-out flat stays deductible. Section 202(2)(a)(xii) removes Chapter VIII deductions, and section 123 is in Chapter VIII. Under the new regime, section 202(2)(b)(ii) also blocks the set-off of a house property loss against other income, such as salary. Under the old regime, section 109(1)(b) lets you set off up to ₹2 lakh of house property loss against other income. Section 110 carries the rest forward for up to eight tax years, against house property income only. If you have no business income, section 202(4)(b) lets you choose the old regime with your return for each tax year. The section 202 new regime table starts with nil tax up to ₹4,00,000. Compare the final tax under both regimes, not just the home loan line.

Item	New tax regime (section 202, default)	Old tax regime
Interest on a self-occupied home, section 22(1)(b)	Not allowed	Up to ₹2,00,000, or ₹30,000
Prior-period instalment on a self-occupied home, section 22(1)(c)	Unverified. Section 202(2)(a) does not name it, but section 202(2)(b)(ii) blocks the loss against other income	Inside the same ₹2,00,000 or ₹30,000 cap
Interest on a let-out flat	Allowed, but the loss cannot reduce salary or other income	Allowed. Loss set-off up to ₹2,00,000 a year
Principal, stamp duty and registration fee, section 123	Not allowed	Up to ₹1,50,000 with other Schedule XV items
How you choose	Applies unless you opt out	Option with the return each year, if you have no business income

3.6.6 Can both co-owners claim the home loan deduction?

Each co-owner can claim, but each person must meet the conditions on their own. Section 24(1) says that co-owners with a definite share are not taxed as one group. Each co-owner’s house property income is computed separately, by their share. Section 24(2) gives the self-occupied relief in section 21(6) to each co-owner as if they were the only owner. So the ₹2 lakh interest limit applies to each co-owner’s own computation. The section 123 limit of ₹1.5 lakh is also per individual. A joint loan alone does not settle the claim. Your ownership share, your name on the loan and the money you actually repaid all matter. The sections Sachi read do not set a rule for a co-borrower who is not an owner. Keep the sale deed shares, the loan account and your repayments consistent. For example, a 50:50 sale deed with one person paying every EMI makes the split harder to support. Ask a tax adviser to work out each person’s share before you file.

3.6.7 What records do you need to claim home loan tax benefits?

You need proof of the loan, proof of what you paid and proof of ownership and possession. The most important record is the interest certificate from your lender. Section 22(2)(a) makes it a condition for the ₹2 lakh limit, and section 22(4) says what it must show. It must state the interest payable on the loan and the interest on any new loan you took to repay it. Ask the lender for this certificate every year. Ask for a principal repayment statement in the same request. Keep the sale deed, because it shows your ownership share and the stamp duty and registration fee you paid. Keep the possession letter and the occupancy or completion certificate. The five-year completion test and the start of the prior-period instalments depend on these dates. If you let the flat out, keep the rent agreement and rent receipts. Keep bank statements that show each EMI leaving your own account.

1. Lender’s annual interest certificate (section 22(4)).
2. Lender’s principal repayment statement.
3. Registered sale deed with stamp duty and registration fee receipts.
4. Possession letter and occupancy or completion certificate.
5. Bank statements for EMI payments and, if let out, the rent agreement.