Union Budget 2026 & the New Income-tax Act: What Actually Changed for Home Loan Borrowers

Every year, the run-up to the Union Budget brings the same wishlist from homebuyers and developers: raise the ₹2 lakh cap on home loan interest deduction, which hasn’t moved since 2014 despite property prices and loan amounts climbing steadily since. Budget 2026, presented on February 1, 2026, didn’t grant that wish — but it did bring one meaningful clarification that under-construction property buyers should know about.

What industry was asking for

Ahead of the Budget, real estate bodies made a familiar case: CREDAI pushed to remove the interest deduction cap entirely for a first self-occupied home and extend the benefit to the new tax regime, while NAREDCO asked for the ₹2 lakh limit to be raised to ₹5 lakh. The argument was straightforward — many middle-class borrowers today pay ₹4–6 lakh a year in interest on their home loan, so a cap frozen at 2014 levels captures a shrinking share of actual interest paid.

What the Budget actually delivered

The headline outcome: no increase to the Section 24(b) interest deduction cap, and no change to the ₹1.5 lakh Section 80C principal repayment limit. Deductions under Section 80EEA for eligible first-time affordable-housing buyers also continue unchanged, subject to existing conditions. For salaried borrowers using the old tax regime, the framework you’ve known for years remains exactly as it was.

The more consequential development sits in the new Income-tax Act, which rolls out from April 2026: it clarifies that pre-construction interest — the interest a buyer pays during the period before possession, on a loan taken for an under-construction property — will continue to be eligible for deduction, but now sits explicitly within the existing ₹2 lakh annual interest limit rather than being treated as a separate, ambiguous bucket. In practice, this removes a longstanding grey area for under-construction buyers about how pre-construction interest should be claimed once possession is taken.

Where the new tax regime still leaves a gap

If you’ve opted for the new tax regime, the rules haven’t softened: interest and principal deductions on a self-occupied property generally aren’t available under the new regime. The only meaningful relief is for a let-out (rented) property, where pre-construction interest and ongoing interest can still be set off against rental income, spread over the permitted years. If home loan tax breaks are a significant part of your financial planning, this is one of the clearer reasons to run the old-vs-new regime comparison carefully rather than defaulting to whichever regime is presented first on your tax portal.

What this means if you’re mid-purchase right now

1. If you’re buying under-construction, don’t assume pre-construction interest is a bonus deduction on top of your ₹2 lakh cap — from FY2026-27 onward, it’s explicitly bundled inside that same limit under the new Act.
2. If your annual interest already exceeds ₹2 lakh, the deduction ceiling hasn’t moved this year, so plan your tax outgo accordingly rather than banking on relief that didn’t materialise.
3. If you’re deciding between the old and new tax regime, model both scenarios with your actual expected interest and principal figures — for a self-occupied home with substantial interest outgo, the old regime frequently still comes out ahead purely on the housing deduction math.
4. PMAY and affordable-housing support continue, with the Budget maintaining its focus on funding for the scheme rather than introducing a fresh incentive layer.

The bottom line

Budget 2026 was a “continuity” budget for home loan borrowers rather than a reform one — the big-ticket ask of a higher interest deduction cap didn’t land, but the new Income-tax Act at least tidies up how pre-construction interest is treated. If you’re structuring a purchase around tax efficiency, it’s worth running the numbers under both the old and new regimes with an advisor before you file, and using Easiloan’s home loan calculator to see how your actual interest outgo lines up against the deduction limits that apply to you.