SC Rules: Homebuyers Can’t Claim Home Loan Interest from Builder for Project Delays

In India, the outstanding loan portfolio stood at ₹22.4 lakh crores at the end of the financial year 2021. A report by Knight Frank India stated 82% of millennials want to own a home, and they see buying land as the best future investment.

However, taking home loans for future homes can be a little tricky now. Why? Because the Supreme Court announced its verdict on something important. 

Read this article on the impact of this new judgement on your home loan.

Challenges in Getting Ownership of Your Home

After you pay the booking or “token” amount, you remain financially exposed until the project is delivered. Here are the typical pain points:

Still, many homebuyers apply for either home loans or personal loans, just to own a home after 10-15 years. But what about the mental stress and other challenges if there’s an extreme delay in handing over the property? 

Does the builder pay the interest on the buyer's home or personal loan?

Consumer‑Forum Order Favored Buyers First

In Greater Mohali Area Development Authority (GMADA) v. Anupam Garg & Ors, the Punjab State Consumer Commission (upheld later by the National Commission) directed GMADA to:

• Refund the entire principal paid by the buyers
  
  
• Add 8 % interest on that amount (compounded annually)
  
  
• Reimburse the interest that homebuyers had paid on their home or personal loan EMIs during the delay period
  
  
• Pay ₹60,000 for mental agony and ₹30,000 litigation costs

The broad view then was that a delayed developer should make the customer “financially whole”—covering both the capital and the financing cost. 

However, the Supreme Court announced a verdict that is not so favourable for the buyers.

Supreme Court’s Final Word—No EMI Interest Reimbursement

GMADA appealed to the Supreme Court, and the SC bench of Justices Sanjay Karol and Prasanna B. Varale partially overturned the consumer forum's relief. Here is what the bench said:

• Single head of compensation: The builder, in this case, GMADA, will provide compensation from the funds stated in the contract, along with extra interest charged. However, the builders will not offer compensation for the interest paid on the home-personal loans, incurred by the buyers.
  
  
• Separate contracts: As per the Supreme Court, the housing loan agreement is between the buyer and the bank, not between the buyer and the builder.
  
  
• Exceptional cases: Additional compensation, such as payment for mental stress and other hardships, may be considered if the builder’s conduct is proven to be fraudulent.

Impact: For most buyers, the best you can now claim for delay is the principal plus the contract‑stipulated interest/penalty, not your EMI interest on home-personal loans.

Silver Lining: Repo‑Rate Cut Makes New Loans Cheaper

On 6 June 2025, the RBI’s Monetary Policy Committee delivered a 50 bp repo‑rate cut, dropping the benchmark to 5.50 %. Public-sector lenders, such as Canara Bank, Union Bank of India, and Indian Overseas Bank, have already trimmed their repo-linked lending rates (RLLR), promising lower EMIs for both new and existing borrowers.

Read this blog - to know, in which bank you will be charged the lowest interest rates

How to lock in a lower‑cost loan now

1. Compare RLLR vs MCLR offers—repo‑linked rates transmit cuts faster.
   
   
2. Ask for festive/top‑up waivers on processing fees—banks are courting demand after the rate move.
   
   
3. Maintain a ≥750 credit score to qualify for the headline rate; below that, spreads widen.
   
   
4. Consider switching (balance transfer) if your current rate is ≥75 bp above new offers—factor in fees.
   
   
5. Fix vs float: If you expect more cuts, floating saves; if you prefer certainty, look for fixed‑rate windows sub‑9 %.
   
   

Conclusion

The SC judgement draws a clear boundary: developers owe you the principal and the agreed delay penalty, but not your EMI interest. That shifts more risk back to borrowers, making due diligence on project track record and contract terms critical.

The good news? The RBI’s aggressive easing cycle has shaved 100 basis points off policy rates since February, and banks are passing that on. If you’re looking for a home loan, act quickly to capture today’s lower rates, while building in buffers for possible construction delays that, post‑verdict, you alone may have to finance.

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LoansJagat Team

We are a team of writers, editors, and proofreaders with 15+ years of experience in the finance field. We are your personal finance gurus! But, we will explain everything in simplified language. Our aim is to make personal and business finance easier for you. While we help you upgrade your financial knowledge, why don't you read some of our blogs?