Home Loan Budget 2026: People who take home loans are finding it harder to save tax. Under the new tax regime, borrowers are not allowed to reduce their tax using the interest they pay on home loans. In the old tax regime, there is some relief, but it is limited to only ₹2 lakh. With house prices going up and monthly loan interest becoming heavier, many experts and industry groups are asking the government to give relief in Budget 2026.
They mainly want two big changes. First, they want the government to allow home loan interest deduction even in the new tax regime. Second, they want the current deduction limit of ₹2 lakh to be increased to ₹5 lakh, or they want the rules on setting off losses from house property to be relaxed.
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Why the ₹2 Lakh Limit is seen as too Low?
Right now, a person can reduce tax on home loan interest only up to ₹2 lakh while calculating income from house property. This limit was fixed in Budget 2014. Before that, the limit was ₹1.5 lakh. Even after so many years, the limit has not changed.
Also if a house is self-occupied and the interest amount is higher than the allowed limit, the extra interest cannot be carried forward to future years.
Experts from the Federation of Indian Petroleum Industry (FIPI) said, “In view of rising prices of properties limit of ₹2,00,000 is inadequate amount. It is suggested to revise the amount of ₹2,00,000 and also allow the carry forward of unabsorbed interest in case of self-occupied property,” in their pre-Budget 2026 note.
The American Chambers of Commerce in India (AMCHAM) also supported higher relief. It said the government should either allow full set-off of house property loss or raise the deduction limit. AMCHAM stated, “It is recommended to allow the house property loss to be set off against any other head of income in the same year without any limit in case of rented property as it was earlier. Alternatively, the limit of ₹2 lakhs may be raised to at least ₹5 lakhs,”.
The law allows house property loss to be adjusted against other income, but only up to ₹2 lakh in a year. AMCHAM explained the problem clearly by saying, “Middle-class people generally invest in property by obtaining loan from the banks. The initial amount of interest paid is always higher than the rental income earned against such property,”.
The Bombay Chambers of Commerce and Industry (BCCI) also wants change. It said, “It is recommended that the restrictive amendment be relooked and suitably amended so that earlier law could be restored. Alternatively, the limit for setoff of loss on account of interest should be increased to ₹5,00,000,”.
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BCCI also pointed out that after the Finance Act 2017, the government capped the loss adjustment at ₹2 lakh. It added, “It is also recommended that there be no restriction in setting off the house property losses and hence, the earlier law should be restored. Further, any carried forward house property loss should be allowed to be set off against any other head of income in future years,”.
Demand to Allow Home Loan Deduction in New Tax Regime
Another major demand is related to the new tax regime. Under this system, even people living in their own homes cannot reduce tax using home loan interest. Experts feel this is unfair, especially when loan repayments are very high.
Tax experts from KPMG suggested a change under Section 202 of the Income-tax Act, 2025, which matches the older Section 115BAC. They said, “Under the new tax regime, taxpayers cannot offset housing loan interest against salary income, including for self-occupied property. Considering the significant burden of home loan repayments and the goal of promoting home ownership, it is recommended that the Government allows such interest deduction on self-occupied property under the new tax regime,”.
