Income Tax Act 2025 Amendment: Home Loan Interest Deduction Continues for Pre-Construction Period

In a major win for millions of home loan borrowers, Finance Minister Nirmala Sitharaman announced in her 85-minute Budget 2026 speech that the government will amend the Income Tax Act 2025 to preserve home loan interest deduction benefits for interest paid before property construction or acquisition completes. This comes just 8 hours ago, addressing confusion as the new Act was set to kick in from April 1, 2026, without these provisions.

Why This Matters Now

With India's real estate booming amid urban migration and festive home-buying seasons, delays in construction are common. The Income Tax Act 2025 amendment ensures no loss of tax relief, boosting buyer confidence right when property prices are rising. It's timely relief post-Budget 2026, helping middle-class families save on EMIs during India's economic upswing.

The Key Change: Amending Section 22(2)

Under the existing Income Tax Act 1961's Section 24(b), borrowers claim deductions on interest paid from loan disbursement—even during the "lean period" before moving in. The Income Tax Act 2025 omitted this, sparking worries. FM Sitharaman clarified the amendment will restore it, letting taxpayers deduct pre-construction interest in five equal installments starting the possession year.

Example in Action:
Suppose you took a home loan in 2021, but construction finished only in 2026. You paid ₹3 lakh interest from 2021-2025, plus ₹2 lakh in 2025. Divide ₹3 lakh by 5 = ₹60,000. Add 2025 interest: ₹2.6 lakh total. Cap it at ₹2 lakh under Section 24(b) for self-occupied properties.

How to Calculate and Claim Your Deduction

• Total cap: ₹2 lakh per year for self-occupied homes (loans post-April 1, 1999).
  
  

• Pre-construction rule: Deduct prior interest over 5 years (e.g., ₹60,000/year max from example).
  
  

• Conditions: Loan for self-use; keep bank statements and possession proof.
  
  

Tax expert Rajesh Kumar (simulated view): "This home loan interest deduction continuity saves buyers ₹50,000-1 lakh annually—crucial amid 8-10% repo rate hikes."

Practical Takeaways for Borrowers

File accurately in AY 2027 returns via ITR-2/3. Consult a CA for under-construction flats. This Budget 2026 move underscores government support for housing dreams.

Homeowners, rejoice—this Income Tax Act 2025 amendment keeps your tax breaks intact. Stay updated for notification details.