As the deadline for filing Income Tax Returns (ITRs) for FY2025-26 approaches, home loan tax deductions under various sections of the Income Tax Act remain a focal point for many taxpayers. Sections 24(b), 80C, 80EE, and 80EEA provide opportunities for significant savings, particularly for first-time homebuyers and those purchasing affordable housing. However, the ongoing debate about the relevance of these benefits is intensified by rising property prices, increased loan amounts, and the growing prevalence of the new tax regime. This shift raises questions about the efficacy of these deductions, particularly as more individuals weigh their financial commitments against the backdrop of changing economic conditions.
Under the current tax framework, homebuyers can claim a deduction of up to ₹2 lakh on home loan interest payments for self-occupied properties under Section 24(b). Additionally, they can benefit from principal repayment deductions of up to ₹1.5 lakh under Section 80C. For eligible first-time buyers, additional deductions apply under Sections 80EE and 80EEA. Notably, the impact of these deductions is most pronounced in the affordable housing sector, where loan amounts typically align with the limits set by these provisions. According to Bikash Kumar Mishra, CFO of Easy Home Finance, borrowers with loans ranging from ₹15 lakh to ₹35 lakh still find these tax benefits valuable, potentially saving between ₹60,000 to ₹1 lakh annually.
Despite these advantages, it is important to consider that the ₹2 lakh cap on interest deductions under Section 24(b) has remained unchanged for over twenty years. This stagnation is particularly concerning as urban property prices and borrowing costs have soared in recent years. For instance, an individual taking out a ₹50 lakh loan at an 8.5% interest rate can face first-year interest payments exceeding ₹4 lakh, rendering a significant portion of their payments ineligible for tax deductions. This concern has led to a reevaluation of how homebuyers perceive these tax benefits in their overall financial planning.
Real estate developers indicate that prospective buyers increasingly factor in tax deductions when assessing their EMI commitments and overall affordability. Neelu Jain, Director at SNN Raj Corp, emphasizes that for many households, the decision to purchase a home is built upon comprehensive financial considerations, including income stability and long-term security. In a time of rising affordability pressures, these tax benefits, while realized during tax filing, play a crucial role in shaping initial decisions regarding loan terms and repayment strategies. Furthermore, the recent CREDAI-Anarock Q1 2026 report highlights a resilient housing market, with a 9% year-on-year increase in sales across major cities, even amidst a 7% rise in average residential prices. This underscores the ongoing significance of tax deductions in enhancing purchasing power, particularly within the affordable housing segment, as buyers navigate increasingly complex financial landscapes.