Home Loan Tax Benefits 2026: Section 22(2), 123 Guide

Home Loan Tax Benefits 2026

Section 22(2) Interest Rs 2L, 123 Principal Rs 1.5L — Old Regime Complete Guide

Part of the Income Tax India 2026 : Income Tax India 2026 : A Complete Guide

Arjun and his wife Priya took a joint home loan of Rs 60 lakh in 2023. Their combined EMI is Rs 52,000 per month. Of this, approximately Rs 36,000 is interest in the first few years.

Most people in their position know they can claim Section 22(2) interest deduction. What many do not know: because they are joint owners AND joint borrowers, both Arjun and Priya can each claim Rs 2 lakh interest deduction separately — a combined Rs 4 lakh deduction on interest alone.

Add Section 123 principal deduction (Rs 1.5 lakh each) and the combined tax benefit reaches Rs 7 lakh per year. At 30% bracket each, that saves them Rs 2.18 lakh in tax annually.

This article covers every home loan tax benefit available in 2026 : Section 22(2) interest deduction, Section 123 principal, joint loan benefits, pre-construction interest, let-out property rules, and why home loan holders almost always benefit more from the old tax regime.

Rs 2 Lakh Max interest deduction — Section 22(2) per taxpayer per year

Rs 1.5 Lakh Principal repayment — Section 123 (within combined limit)

Old Regime All home loan deductions for self-occupied: old regime only

Rs 4 Lakh Joint loan: both owners can claim Rs 2L each on interest

1. All Home Loan Deductions Table

Section	What is Deductible	Maximum Limit	Conditions	Regime
Section 22(2)	Interest paid on home loan	Rs 2,00,000/year (self-occupied). No limit (let-out).	Loan for purchase or construction (for repair limit is Rs. 30000). Construction must complete within 5 years of loan year-end.	Old regime (self-occupied). BOTH regimes (let-out).
Section 123	Principal repayment + stamp duty + registration charges	Up to Rs 1,50,000/year (within combined 123 ceiling)	Property not to be sold within 5 years of possession. Not for under-construction property.	Old regime only
Section 131	Additional interest deduction for first-time buyers (affordable housing)	Rs 1,50,000 additional (over 22(2) limit) — only for loans sanctioned April 1, 2019 to March 31, 2022	Stamp value of property up to Rs 45L. Taxpayer should not own any residential house on loan sanction date.	Old regime only
Pre-construction interest under Section 22(2)	Interest paid before property possession/completion	Claimed in 5 equal instalments from year of possession. Subject to overall Rs 2L ceiling.	Only for purchase or construction loans. Not for repair or renovation.	Old regime (self-occupied). Both (let-out).

2. Section 22(2) — Interest Deduction in Detail

Section 22(2) of the Income Tax Act (Section 21 of IT Act 2025) allows deduction of interest paid on a loan taken for purchase, construction, repair, renewal, or reconstruction of house property. The rules differ for self-occupied vs let-out property.

Property Type	Interest Deduction Limit	Available in New Regime?	Key Condition
Self-occupied property	Up to Rs 2,00,000 per year	NOT available	Loan must be for purchase or construction only. Completed within 5 years of loan year-end.
Let-out (rented) property	No upper limit — full interest deductible against rental income	Technically available in new regime but losses cannot be set off against salary	Excess interest over rental income creates “house property loss” — set off against other income capped at Rs 2L in old regime only
Deemed let-out (second house)	Full interest deductible against notional rent	Loss set-off against salary capped at Rs 2L — old regime only	If you own two self-occupied houses, one is deemed let-out and taxed on notional rent
Under-construction property	NIL during construction — no deduction allowed while under construction	N/A	Pre-construction interest can be claimed in 5 instalments after possession under 22(2)

Pre-Construction Interest — 5-Year Rule

Interest paid on a home loan from the date of borrowing until March 31 of the year before the property is acquired or constructed is called pre-construction period interest. This cannot be claimed in the year it is paid. Instead, it is aggregated and claimed in 5 equal annual instalments from the year in which possession is taken, subject to the overall Rs 2 lakh per year ceiling.

Example: If you paid Rs 3 lakh in pre-construction interest before possession, you can claim Rs 60,000 per year for 5 years (Rs 3L divided by 5), in addition to the current year’s interest — but total cannot exceed Rs 2 lakh per year.

3. Section 123 : Principal Repayment Deduction

The principal component of home loan EMI qualifies for Section 123 deduction up to Rs 1,50,000 per year (within the combined 123 ceiling) under old regime. Two additional items also qualify under 123 for a home: stamp duty and property registration charges — both claimable in the year of payment. ^[3]

Component	Eligible Under 123?	Limit	Conditions
Principal repayment in EMI	Yes	Within Rs 1.5L Sec.123 ceiling	Property not to be sold within 5 years of possession. If sold earlier, deductions claimed are reversed.
Stamp duty paid on purchase	Yes — one-time benefit	Within Rs 1.5L Sec. 123 ceiling	Claimable only in the year of payment. Cannot carry forward.
Property registration charges	Yes — one-time benefit	Within Rs 1.5L Sec. 123 ceiling	Claimable only in the year of payment.
Home loan principal — repair/renovation loan	No	Not eligible	Only purchase or construction loans qualify. Repair/renovation loans excluded from 123.

4. Joint Home Loan — How Both Owners Can Double the Benefit

Taking a home loan jointly with a spouse, parent, or sibling is one of the most powerful tax planning strategies available. When both co-applicants are also co-owners, each can claim the full deduction limits independently.

Deduction	Single Applicant	Joint Loan (Both Co-Owners)	Tax Saved (30% bracket, both)
Section 22(2) Interest	Rs 2,00,000/year	Rs 2,00,000 each = Rs 4,00,000 combined	Rs 1,24,800 combined (Rs 4L x 30% + 4% cess)
Section 123 Principal	Rs 1,50,000/year	Rs 1,50,000 each = Rs 3,00,000 combined	Rs 93,600 combined (Rs 3L x 30% + 4% cess)
Total Annual Deduction	Rs 3,50,000	Rs 7,00,000	Rs 2,18,400 combined annual tax saving

Two critical conditions for joint loan tax benefits: (1) Both must be co-owners of the property — being only a co-borrower without ownership does not give the right to claim deduction. (2) Both must actually be paying the EMI from their own income. Simply being on the loan agreement is not sufficient. Source: incometaxindia.gov.in FAQs on Income from House Property.

Practical tip: to maximise both deductions, structure the joint loan so both partners are co-owners in the property registration document and both contribute to EMI from their respective bank accounts. Keep bank transfer records as proof.

5. New vs Old Regime — Home Loan Comparison

Under the new tax regime, Section 22(2) interest deduction is NOT available for self-occupied properties. Section 123 principal deduction is also not available. This is one of the main reasons home loan holders typically benefit more from the old regime.

Deduction	Old Tax Regime	New Tax Regime	Impact
Section 22(2) interest — self-occupied	Up to Rs 2,00,000	NOT available	Loss of Rs 62,400 tax saving per taxpayer at 30% bracket
Section 123 — principal repayment	Up to Rs 1,50,000 (within 123)	NOT available	Loss of Rs 46,800 tax saving at 30% bracket
Section 22(2) interest — let-out property	Full interest against rental income + Rs 2L loss set-off	Technically available but loss set-off against other income not allowed	Complex — consult CA for let-out property in new regime

For the complete regime comparison with breakeven calculator : New Tax Regime Vs Old Tax Regime 2026

Must read Mutual Funds India 2026: Complete Beginner’s Guide 

6. Frequently Asked Questions

Conclusion

A home loan in the old tax regime generates some of the largest tax deductions available to individual taxpayers:

• Section 22(2): Rs 2,00,000 interest deduction per person per year. Joint loan doubles this to Rs 4,00,000.
• Section 123: Rs 1,50,000 principal + stamp duty + registration. Joint loan doubles to Rs 3,00,000.
• Combined old regime benefit: Single person Rs 3.5L, joint loan up to Rs 7L per year in deductions.
• New regime: No Section 22(2) for self-occupied, no Section 123.

For how to choose between old and new regime if you have a home loan: New Tax Regime Vs Old Tax Regime 2026

For all deductions beyond home loan: How To Save Income Tax India 2026: 15 Legal Ways

Author –

CA Ajay Khandelwal is a Chartered Accountant and financial expert with over 21 years of experience in taxation, compliance, and business advisory. As a key expert at AspirixWriters, he provides practical insights on income tax, financial planning, and regulatory matters, helping readers make informed financial decisions.

Author Profile CA. Ajay Khandelwal

Disclaimer

This article is for educational and informational purposes only. It is not personal tax advice. Home loan tax rules are based on the Income Tax Act 2025, IT Rules 2026, and incometaxindia.gov.in. Individual tax benefit depends on loan amount, interest paid, property type, ownership structure, and chosen tax regime. Please consult your Chartered Accountant before making tax decisions based on home loan deductions.

References

[1] Income Tax Department — FAQs on Income from House Property | Section 22(2) interest limits | Self-occupied vs let-out | Pre-construction interest | Joint loan deductions | Loan from relatives | incometaxindia.gov.in/Pages/faqs.aspx

[3] Income Tax Department — Deductions allowable to taxpayer | Section 123 — principal repayment | Stamp duty and registration charges | 5-year lock-in on sold property | 80EEA sunset | incometaxindia.gov.in

[2] Income Tax Act 2025 (Act 30 of 2025), egazette.gov.in | Section 21 — Income from House Property | Deductions allowed | Self-occupied property | Let-out property provisions — https://egazette.gov.in