Tax laws related to home loans and certain changes proposed in the Union Budget 2025 came into effect on April 1, 2025. These will affect homebuyers, property investors, and real estate developers.
The new provisions are also expected to boost demand, increase tax compliance, and make property transactions more transparent and investor-friendly.
If you are considering buying a property in 2025-26, you must know how these changes will influence your transaction. You must know how you can benefit from these laws.
In this article, we will discuss how the changes in the tax laws will affect you in 2025-26.
Tax Relief on Second Home
The government has made a significant policy change by allowing the second home to be considered self-occupied, thus exempting it from the notional rent calculation.
Previously, owning more than one property meant the second property would be taxed on deemed rental income, even if not rented out. This made owning a second home, such as a vacation property, less attractive due to the extra tax burden.
This tax policy change will considerably benefit existing owners of a second home, whether it is for a weekend getaway or for vacationing.
This benefit will now encourage homebuyers to buy a second home without worrying about the additional tax burden.
Many will look toward suburbs and tier-2 and -3 cities, using these homes as vacation retreats. Others may buy a second property with plans to sell it later, capitalizing on future market opportunities.
Additionally, if you take a second home loan, you can still claim the same tax benefits as your first home loan, subject to the respective deduction limits.
TDS Threshold Limit on Rental Income
In another major policy change, the government increased the threshold limit for paying the TDS on the rental income from ₹2.4 Lakh to ₹6 Lakh.
This will reduce the tax burden on smaller taxpayers who are in the business of renting out smaller premises for their living and thus enjoy higher disposable income.
Home Loan Tax Deductions
Home loan tax benefits will continue under the old tax regime. However, if you have opted for the new tax regime, you will not be eligible for any tax benefits under Sections 80C, 24(b), 80EE, or 80EEA — except for one exception. Under Section 24(b), a deduction is available for let-out properties.
You can claim home loan interest tax deduction under Section 24(b), provided the home loan is taken for purchasing or constructing a house property. If the loan is for construction, the project must be completed within five years from the end of the financial year in which the loan was sanctioned. The maximum deduction allowed is ₹2,00,000 per annum for self-occupied property, although there is no upper limit for rented-out property.
However, the deduction on the principal component under Section 80C remains capped at ₹1.5 lakh. To be eligible for this deduction, you need to ensure that the property isn’t sold within 5 years from the time of possession. Any deduction claimed earlier will be added back to your income.
An additional deduction of ₹1.5 lakh for first-time homebuyers purchasing affordable housing (subject to conditions) is also allowed under Section 80EEA. Moreover, as per Section 80EE, a first-time homebuyer can claim a home loan interest deduction of up to ₹50,000 per financial year until you fully repay the loan (subject to conditions). However, you cannot claim deductions under Sections 80EE and 80EEA simultaneously.
Existing borrowers can also benefit because of higher tax exemption. It will also motivate many borrowers to prepay their loan liabilities.
Tax Deductions for Joint Housing Loan
When a home loan is taken jointly, each borrower can claim separate deductions for home loan interest and principal repayment. Under Section 24, each loan holder can deduct up to ₹2 lakh for interest paid, and under Section 80C, up to ₹1.5 lakh for principal repayment, provided they are also co-owners of the property.
Therefore, joint home loans can significantly increase the overall tax benefits for a family.
Tax Benefits for Home Loans During the Pre-Construction Period
If you have taken a home loan for an under-construction property and are paying EMIs, you cannot claim a deduction on the interest portion until the construction is completed. However, if you purchase a fully constructed property, tax deduction can be claimed immediately.
The Income Tax Act provides a provision for claiming a deduction on interest paid during the pre-construction period, known as pre-construction interest. This amount can be deducted in five equal annual instalments starting from the year in which the construction is completed or the property is acquired. This deduction is in addition to the regular deduction on home loan interest, but the total claimable amount is subject to the ₹2 lakh limit.
Tips to Maximize Tax Benefits
One of the best ways to maximize home loan tax benefits is to take a joint home loan with a family member.
Additionally, claim House Rent Allowance (HRA) if you are living in a rented house while owning a let-out property. Prioritise home loan principal repayment within your Section 80C investments to maximize tax benefits.
