Tax Benefits of Home Loans & Affordable Housing Schemes in 2025-26
Introduction
Buying a house is one of the biggest financial decisions for most Indians. While it requires a substantial investment, home loans and government housing schemes not only make it affordable but also offer attractive tax benefits.
The Union Budget 2025-26 continues to promote the Housing for All mission with incentives for both first-time buyers and those investing in affordable housing projects. By understanding the available tax deductions and schemes, you can reduce your loan burden and save significantly on taxes.
This blog will give you a complete guide to the tax benefits of home loans and affordable housing schemes in 2025-26, along with practical examples.
1. Tax Benefits on Home Loans in 2025-26
Home loan tax benefits are available on both principal repayment and interest payment under different sections of the Income Tax Act, 1961.
A. Deduction on Principal Repayment – Section 80C
- Limit: Up to ₹1.5 lakh per year.
- Eligibility: Only for repayment of the principal component of a home loan taken for a residential property.
- Conditions:
- The house must not be sold within 5 years of possession.
Loan must be from a recognised financial institution or bank.
💡 Tip: Combine with other 80C deductions like PF, ELSS, and Life Insurance to fully utilise the limit.
B. Deduction on Interest Payment – Section 24(b)
- Limit: Up to ₹2 lakh per year for self-occupied property.
- For Let-Out Property: Entire interest paid is deductible (no upper limit).
- Condition: Construction or purchase must be completed within 5 years from the end of the financial year in which the loan was taken.
C. Additional Deduction for First-Time Buyers – Section 80EEA
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Limit: Up to ₹1.5 lakh per year over and above Section 24(b).
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Conditions:
Loan sanctioned between 1 April 2019 and 31 March 2025 (extended in Budget 2025).
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Property value up to ₹45 lakh.
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Buyer must not own any other residential property.
D. Deduction on Stamp Duty and Registration Charges
- Covered under Section 80C (within ₹1.5 lakh limit).
- Claimable in the year of purchase only.
2. Affordable Housing Schemes in 2025-26
The government continues to encourage affordable housing through subsidies and interest benefits.
A. Pradhan Mantri Awas Yojana (PMAY) – Credit Linked Subsidy Scheme (CLSS)
- Subsidy: Interest subsidy of 3%–6.5% on home loan interest, credited upfront to your loan account.
- Eligibility:
- First-time home buyer.
Income limits:
EWS (up to ₹3 lakh/year)
LIG (₹3–6 lakh/year)
MIG-I (₹6–12 lakh/year)
MIG-II (₹12–18 lakh/year)
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Property Size: Carpet area limit varies by income category.
B. Special Tax Incentives for Affordable Housing Projects
- Builders of affordable housing projects get tax benefits under Section 80-IBA, which in turn keeps property prices lower.
C. State-Level Affordable Housing Schemes
- States like Maharashtra, Gujarat, and Karnataka offer additional subsidies and reduced stamp duty for affordable housing purchases.
3. Tax Planning Strategies to Maximise Benefits
✅ Combine 80C, 24(b), and 80EEA:
For a first-time buyer, total deduction can reach ₹5 lakh/year (₹1.5L under 80C + ₹2L under 24(b) + ₹1.5L under 80EEA).
✅ Claim in Joint Home Loans:
If the loan is taken jointly, each co-borrower can claim full deductions separately (subject to their share in the loan).
✅ Time Your Purchase:
Buy before 31 March 2025 to avail the extended 80EEA benefit.
✅ Use PMAY with Tax Deductions:
Interest subsidy reduces the principal burden, while tax benefits lower your tax liability.
4. Common Mistakes to Avoid
❌ Not keeping loan sanction letter and interest certificate for tax proof.
❌ Missing the deadline for claiming stamp duty deduction.
❌ Assuming benefits apply to under-construction property without checking completion status.
❌ Forgetting that selling the house within 5 years reverses 80C benefits claimed.
5. Example – How Much Can You Save?
Scenario:
- Loan Amount: ₹40 lakh
- Interest Rate: 8% p.a.
- Annual Interest: ₹3.2 lakh
- Annual Principal Repayment: ₹1.2 lakh
- Buyer: First-time home buyer, property value ₹42 lakh, loan sanctioned in FY 2025-26.
Tax Benefits:
- ₹1.5 lakh under 80C (principal + stamp duty).
- ₹2 lakh under 24(b) (interest).
- ₹1.2 lakh under 80EEA (balance interest).
Total Deduction: ₹4.7 lakh → Tax saving of ₹94,000 if in the 20% tax bracket.
Final Thoughts
The 2025-26 financial year is an excellent time for homebuyers, especially first-time buyers of affordable housing. With combined tax deductions and government subsidies, you can save lakhs while fulfilling your dream of home ownership.
Key takeaway: Plan your purchase and loan structure smartly to get maximum tax savings and minimum EMI burden.
Quick Summary
- Section 80C: ₹1.5L on principal repayment + stamp duty.
- Section 24(b): ₹2L on interest for self-occupied houses.
- Section 80EEA: ₹1.5L extra for first-time buyers (till 31 March 2025).
- PMAY offers interest subsidies up to 6.5%.
- Combine schemes to save ₹4–5 lakh/year in deductions.
