Last updated 12 Nov 2026
A home loan can reduce your income tax, but only if you qualify and only under the tax rules that apply to you. In general terms, the interest you pay and the principal you repay may each carry a deduction, with conditions about ownership, how the property is used, whether it is complete, and which tax regime you choose. The rules are not the same for everyone, and they changed in form under the Income-tax Act, 2025, which renumbered the sections. This guide shows how to work out your own position and what to keep, without stating limits that you should check at the source.
It is general information, not tax advice. Confirm every point on the Income Tax Department's website or with a tax adviser before you rely on it. Rules and limits change.
The two parts of a home loan that can matter for tax
Interest and principal
| Part | What it is | How tax rules usually treat it |
|---|---|---|
| Interest | The cost of borrowing, paid inside each EMI | A deduction may be allowed, subject to a limit and to conditions that depend on how the property is used |
| Principal | The part of each EMI that repays the loan | A deduction may be allowed along with other eligible savings, subject to a limit and to holding the property for a minimum period |
| Stamp duty and registration | One-time costs at purchase | May be eligible in the year of payment under conditions, as part of the same group of deductions as the principal |
| Processing fee and other charges | Lender charges | Whether they count as interest or as a cost depends on the tax rules; ask your adviser |
See EMI, principal and stamp duty for definitions.
Which tax regime are you in
This is the first thing to settle. India offers more than one way to compute income tax. The default regime generally gives lower rates and fewer deductions, and the older regime keeps many deductions, including those linked to a home loan. If you choose the default regime, most home loan deductions generally do not apply. If you choose the older one, they may. The right choice depends on your income, your other deductions and the size of the interest you pay. Run both before you decide. Your employer may ask you to declare the regime at the start of the year.
How to decide
| Question | Why it matters |
|---|---|
| What is my total income? | Lower rates under the default regime can offset lost deductions |
| How much interest and principal will I pay this year? | Bigger payments make the older regime more attractive |
| What other deductions do I have? | Insurance, provident fund and other eligible items add to the older regime |
| Can I switch every year? | Salaried people can usually choose each year; business owners face stricter rules. Check |
Self-occupied and let-out property
The way you use the property changes the tax treatment. For a property you live in, there is generally a cap on the interest you can deduct. For a property let out on rent, the rent is income and the interest may be set against it, with different limits on the loss you can carry. A property that is vacant may be treated as self-occupied or let-out under the rules. State your use accurately in your return.
Use of the property and what to check
| How you use it | What to check with your adviser |
|---|---|
| Self-occupied | The interest cap, and whether the loan was taken within a stated period for a stated type of purchase |
| Let out | How rent is taxed, how interest is set against it, and any limit on carrying a loss |
| Under construction | Interest before possession is generally treated differently; see below |
| Second home | How the rules treat more than one property |
Interest paid before you get possession
If you buy a flat under construction, you pay interest on the loan before possession. In general terms, interest during that period is not claimed in that year. It is added up and claimed in equal parts over a set number of years starting from the year of possession, within the overall limit. Keep a record of the interest paid in each year of construction. Ask the lender for a statement that shows pre-possession interest.
Joint home loans
If you and a co-borrower both own the property and both repay the loan, each can usually claim a deduction in respect of the share each pays, up to the limits for each individual. Tax rules look at ownership and who pays, not only who is on the loan. A co-borrower who is not an owner may not be able to claim. Read Joint loan and Co-applicant vs guarantor.
Joint loan: what to align
| Point | What to do |
|---|---|
| Ownership shares | Make sure the sale deed shows the share each owner holds |
| Repayment | Pay the EMI from accounts of the people who will claim, so the record is clear |
| Interest certificate | Ask the lender for a certificate that shows each borrower's share, if it can |
| Records | Each person keeps their own proofs |
Balance transfer and top-up loans
If you move a home loan to another lender, the interest on the new loan used to repay the old one may continue to be treated as home loan interest. A top-up loan is different: what counts depends on how you use the money. If you use a top-up to improve the house, interest may qualify under the rules for the house; if you use it for something else, it may not. Ask your adviser. See Home loan balance transfer and top-up.
Papers to keep
Documents for a home loan tax claim
| Document | Why it matters |
|---|---|
| Annual interest and principal certificate from the lender | Shows how much interest and principal you paid in the year |
| Sale deed or allotment letter | Shows ownership and your share |
| Possession letter and completion proof | Shows when the home was ready, which affects pre-possession interest |
| Loan sanction letter and statement | Shows the purpose of the loan and the dates |
| Stamp duty and registration receipts | Proof of one-time costs |
| Rent agreement and rent receipts, if let out | Proof of income from the property |
| Employer declaration or Form 16 | Shows the deductions your employer considered |
The lender usually issues a certificate each year after the financial year ends. Ask for it in April. If it is not issued automatically, request it in writing.
A worked example of the steps (no tax figures)
A salaried teacher in Pune buys a flat with a joint home loan with a spouse. They each own half the flat and each pays half of the EMI from their own account. The teacher checks the regime, asks the lender for a certificate showing each borrower's share of interest and principal, keeps the sale deed showing half ownership each, and runs the tax calculation under both regimes to see which gives the lower tax. Neither assumes a figure. They confirm the limits with an adviser or the Income Tax Department.
Common mistakes
- Assuming a deduction applies without checking the regime.
- Claiming interest on a property you do not own, or on a loan taken for another purpose.
- Not keeping the lender's certificate and the sale deed.
- Both co-borrowers claiming the full amount, when it should be split.
- Forgetting that pre-possession interest has its own timing.
- Not telling your employer your choice of regime, so tax is cut at source without the deduction.
LOANZ 360 is a loan aggregator, not a lender, and does not give tax advice. For loan costs and comparison, see Key Fact Statement and APR and the home purchase loan page.
Frequently asked questions
Can I claim tax benefits on a home loan?
Possibly. The interest and the principal can each carry a deduction under the rules, if you qualify. It depends on the regime you choose, who owns the property, how it is used and whether it is complete. Confirm with the Income Tax Department or an adviser.
Do I get a home loan tax benefit under the new tax regime?
The default regime generally does not allow most home loan deductions, while the older regime does. Compare your tax both ways. Check the current year's rules.
Can both husband and wife claim on a joint home loan?
Generally yes, if both are owners and both repay, each claiming for their own share within the limit. A co-borrower who is not an owner may not be able to claim.
Can I claim interest paid before I got possession?
In general terms, that interest is claimed in parts over a set number of years from the year of possession, within limits. Keep a statement showing the interest for each pre-possession year.
Which document proves my interest payments?
The lender's annual certificate of interest and principal repaid. Keep your loan statement as backup.
Does the tax benefit change if the Income-tax Act has been renumbered?
The section numbers changed under the Income-tax Act, 2025. The idea of the relief may be similar, but the numbers, limits and conditions should be checked in the current law.
Related reading: Education loan interest and tax, Joint home loan, Home loan balance transfer and top-up, Home loan documents, How to reduce home loan EMI, Home purchase loan, Home loan, Joint loan, Stamp duty, EMI calculator.
See Home Purchase Loan Ask an advisor about it
More guides on this loan
- Stamp Duty and Registration in Telangana for Property Buyers
- Stamp duty and registration charges by state: how they work and where to check
- PMAY housing scheme guide: urban and rural help to buy or build a home
- Loan pre-approval vs pre-qualification: what is the difference?
- Joint home loan: who can apply and what changes