Home Loan Tax Deductions For First-Time Buyers: Key Rules

Buying a first home is also becoming a tax decision. With Budget 2026 clarifying pre-EMI treatment and the new regime limiting deductions, many borrowers are recalculating savings. 

First-time homebuyers often assume the home-loan tax break will automatically reduce their tax outgo. In practice, the benefit depends on 2 decisions: whether the buyer files under the old tax regime or the new one, and whether the property is self-occupied or let-out. 

The Income Tax Department has clearly stated that under the new regime, interest on borrowed capital for a self-occupied property is not allowed as a deduction from house property income. That single line changed the maths for many salaried buyers who had shifted to the new regime by default. 

Why Are First-Time Buyers Rechecking Deductions?

The core issue is not the home loan itself, it is the regime choice and proof trail. Under the old tax regime, the typical home-loan relief comes from Section 80C (principal-linked) and Section 24(b) (interest-linked). 
 
 

Read More - Home Loan Interest Deduction

Under the new regime, the self-occupied interest deduction is not allowed, which wipes out what many borrowers consider the biggest benefit. This is why a buyer who is paying large interest in the early years of the loan often sees a sharper tax difference between regimes. Also, buyers of under-construction homes face a documentation gap, because pre-EMI interest is not claimed the same way as regular interest after possession.

Before getting into the details, here is the regime impact in one glance.
 

This table is the pivot. Once the regime is clear, the filing becomes far less confusing.

How The Key Deductions Work In FY 2025–26?

For buyers choosing the old regime, the usual tax relief is split into 2 buckets.

Section 80C allows deductions up to ₹1,50,000 (overall cap) and includes eligible items like the principal part of the home loan repayment. Since this cap is shared with PF, PPF, ELSS and other investments, many buyers cannot use the full limit for principal.

Section 24(b) is the main relief for interest. Multiple credible explainers continue to report the self-occupied interest deduction limit at ₹2,00,000 under the old regime framework.

Here is a section-wise map for quick reference.
 

Principal repayment deduction within the ₹1,50,000 overall cap.

Section 24(b)

Interest deduction for self-occupied property up to ₹2,00,000 under old regime rules as commonly explained in tax guides.

Section 80EEA (only if eligible)

Additional interest deduction up to ₹1,50,000 if the loan was sanctioned between 01 April 2019 and 31 March 2022 and other conditions apply, including stamp duty value not exceeding ₹45,00,000. (cleartax)

Employers usually ask for an annual interest certificate and possession-related proof for under-construction cases, so borrowers need paperwork ready well before proof-submission deadlines.