How Budget 2025 Will Impact Home Loan Tax Deductions

If you’re a salaried professional or a potential homebuyer, this year’s Union Budget may just tip the scales in your favor. Among its most notable updates is a major tax relief for homeowners: the government has increased the deduction limit on home loan interest for let-out properties under the new tax regime from ₹2 lakh to ₹3 lakh per annum.

This change is especially relevant if you’re exploring a home loan in the new tax regime 2025, offering better incentives for choosing homeownership while saving more on your income tax.

What's New Under Sections 24(b) and 80C?

• Section 24(b):
  The deduction for interest paid on home loans has now been raised to ₹3 lakh per year under the new tax regime but only for rented/let-out properties, giving borrowers a significant tax-saving boost.
• Section 80C:
  Benefits on principal repayment up to ₹1.5 lakh remain applicable (mainly under the old tax regime), ensuring continued savings on total loan repayment.

Together, these provisions make a home loan in 2025 a smart financial and tax-saving decision for those under the old regime or those with let-out properties.

Key Highlights of Budget 2025 for Home Loan Borrowers

• Enhanced tax benefits for home loan borrowers.
• Commitment to making housing more accessible.
• Revised provisions under Section 80C of the Income Tax Act.

These changes aim to support middle-income families and first-time homebuyers, providing greater financial relief.

Also Read: New Tax Regime vs. Old Tax Regime

Increased Home Loan Tax Deductions in Budget 2025

One of the most notable announcements in Budget 2025 is the enhanced home loan tax deductions. The deduction on the interest component of home loans under Section 24(b) has been increased to INR 3 lakh from the previous INR 2 lakh for let-out properties. This change is expected to provide much-needed relief to homeowners burdened by high interest rates.

Additionally, the deduction on the principal component under Section 80C remains capped at INR 1.5 lakh. However, the government’s continued emphasis on home loan tax benefits makes owning a home more financially viable for old regime taxpayers .

Why Homebuyers Should Pay Attention to Budget 2025 Changes?

The Union Budget 2025 introduces key updates that enhance home loan benefits under the new tax regime only for specific cases like let-out properties, offering greater savings opportunities for homebuyers.

Higher tax savings

With increased deductions on interest payments (for let-out properties), homeowners can save more on taxes.

Encouragement for first-time buyers

The additional tax benefits will motivate more individuals to invest in property.

Boost to the real estate sector

Greater demand for housing is likely to stimulate growth in the real estate market.

How Section 80C Applies to Home Loans in 2025

Section 80C of the Income Tax Act offers significant tax relief for homebuyers, particularly those repaying the principal amount of a home loan. Under this section, taxpayers can claim a deduction of up to ₹1.5 lakh per financial year on the principal portion of their home loan EMI - helping reduce overall taxable income.

However, this home loan tax benefit is only available under the old tax regime. Individuals opting for the new tax regime will not be able to claim this deduction under Section 80C.

To be eligible for the home loan principal deduction:

• The property must not be sold within five years of possession.
• If sold earlier, the tax benefits availed will be reversed and added back to the taxable income of the year of sale.

For eligible taxpayers under the old regime, Section 80C home loan benefits can be a valuable tool for annual tax savings.

What is the tax benefit of home loan in Budget 2025?

Apart from the deductions under Section 80C, home loan borrowers can also enjoy the following home loan tax benefits:

• Section 24(b): Deduction of up to INR 3 lakh on interest payments for let-out properties only.
• Section 80EEA: An additional deduction of INR 1.5 lakh for first-time homebuyers purchasing affordable housing (subject to conditions) under the old regime.

Together, these provisions provide substantial tax relief and make homeownership more attractive for those choosing the appropriate tax regime.

Benefits for Existing Home Loan Borrowers Under the New Tax Regime

Existing borrowers can also take advantage of the updated provisions in the Union Budget 2025:

• Lower tax liability – The increased deduction limits on let-out properties will reduce the taxable income for many borrowers.
• Encouragement to prepay loans – With greater tax incentives under specific conditions, borrowers may be motivated to prepay their loans and save on interest costs.

Also Read: Home Loan Tax Benefits for Women

The Bottom Line

The Budget 2025 shows a clear intent to promote homeownership and provide financial relief to taxpayers. The changes in home loan tax benefit provisions are a step in the right direction, offering significant savings for both new and existing borrowers depending on the type of property and tax regime chosen.

If you are planning to invest in property or are already servicing a home loan, now is the time to reassess your finances and maximise the available tax benefits. Understanding the nuances of 80C deduction for home loans and other relevant provisions will help you make informed decisions.

Apply now for loan to take advantage of the new tax benefits and make your dream home a reality.

Additionally, if you want to calculate your monthly EMIs easily, use an Online Home Loan EMI calculator to make calculating EMIs super easy.

FAQs

Q.1. How much will the tax be reduced if I take a home loan?

A. Home loan tax benefits can be claimed under the Income Tax Act of India, 1961. Customers can claim a deduction of up to INR 1.5 lakhs per financial year on the principal amount under Section 80C and of up to INR 2 lakhs per financial year on the interest paid under Section 24(b).

Q.2. What is the new tax regime in 2025?

A. In the Budget 2025 announcement, Finance Minister of India, Nirmala Sitharaman, said that people earning up to INR 12 lakh will not have to pay income tax under the new tax regime.

Q.3. Is a housing loan tax exemption in the new tax regime?

A. Deductions introduced under the new tax regime 2025-26 include:

• Section 24(b) — This section allows a deduction for interest paid on a housing loan for a let-out (rented) property. Taxpayers can claim this deduction under the new tax regime.
• Section 80CCD (2) — This section provides a deduction for the employer's contribution to the National Pension Scheme (NPS), capped at 14% of the salary for government employees and 10% for others.

Q.4. Can we claim house rent in the new tax regime?

A. The house rent allowance (HRA) exemption is only available if you live in rented accommodation. However, the HRA exemption is not applicable under the new tax regime.

Q.5. What are the new income tax rules for home loan interest?

A. As per section 80EE, you can claim a home loan interest deduction of up to INR 50,000 per financial year until you fully repay the loan

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