Govt’s big relief for home owners!:Taxpayers will continue to get tax deduction benefits on home loan interest paid before property construction or acquisition

The Finance Minister Nirmala Sitharaman announced a big relief for home loan borrowers as she delivered the Budget 2026 speech that lasted 85 minutes. According to her, the tax payers in India will continue to get income tax deduction benefits on home loan interest paid on purchase or construction of their dream homes even before the construction is completed or they have shifted in their ready to move in new flats. This benefit they can already avail as per the Income Tax Act 1961 but provisions for the same were not given in the Income Tax Act 2025 that would come into effect from 1 April 2026. Because the new tax law didn’t have provisions using which the home loan borrowers could have availed the above said benefits, so, this created confusion in the minds of tax payers. But, thanks to Sitharaman, she announced in the Budget 2026 that government will amend Section 22 (2) of the I-Tax Act, 2025 for this purpose, a move which would ensure continued relief to the home loan borrowers. What is this law? According to the I-T Act 1961, the tax payers can avail of the tax exemption benefits on interest paid on home loans even during the period starting the day the financial institution like bank had disbursed the loan and the borrower was not able to complete construction of his house or was not able to acquire the property due to some reasons. The law empowers him to get tax deduction benefits for this lean period as well against the interest component of the EMI payments made.
Example: Suppose, the borrower got his home loan disbursed by the bank in 2021. But due to some reasons, the construction of his dream home could only get complete by 2026. During this 4-year period, he continued with the payback of the EMIs but couldn’t shift as the construction wasn’t completed. In such cases, the law enables him to get tax deductions against the interest paid during this 3-year period. How will the borrower calculate the claim amount? Suppose, the tax payer paid total of ₹3 lakh interest during those four years. Then, the tax payer can reduce his taxable income for the year 2026 by the interest amound paid during those previous three years in 2025 or the year in which he actually shifted to his new house. He needs to divide ₹3 lakh by 5 which comes to ₹60,000. Then, he needs to add the interest he paid in 2025 which suppose is ₹2 lakh. So, total deductions he can claim is ₹(2,00,000+60,000) = ₹2,60,000 But he will be able to claim only ₹2 lakh as this is the cap levied by the government. The total interest amount paid from 2021 to 2025 was divided by 5 because according to the I-T Act, 1961, interest liability on home loan is allowed as deduction only for a total of five equal instalments. What does the I-T Act 1961 say? Somebody who has taken home loan for self occupation purpose can get total tax deduction benefits of up to ₹2 lakh in a single financial year towards payments made on payback of the interest amount. They can save this amount on payback of ₹2 lakh interest amount under the Section 80C of the I-T Act, 1961. Conditions: (i) The home loan needs to be sanctioned for self occupation purpose (ii) The loan must have been sanctioned on or after April 01, 1999. What does Section 24(b) of Income Tax Act 1961 state? Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period before the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years.