Budget 2026: Homebuyers Eye ₹5 Lakh Tax Rebate in Old Regime Push

### Homebuyers Push for Increased Tax Relief

Homebuyers are looking to the Union Budget 2026-27, slated for presentation on February 1 by Finance Minister Nirmala Sitharaman, with significant expectations. A key demand gaining momentum is the potential increase in the tax deduction for home loan interest to ₹5 lakh, a benefit primarily sought by those opting for the old tax regime. This call arises as escalating property values and expanded loan amounts render current deduction limits increasingly insufficient.

### Old Tax Regime's Advantage

The old tax regime offers considerably more attractive home loan tax benefits. Borrowers can claim deductions on principal repayment under Section 80C (up to ₹1.5 lakh) and interest paid on self-occupied homes under Section 24(b) (up to ₹2 lakh). Additional benefits exist for first-time buyers via Sections 80EE and 80EEA, with joint owners able to claim these individually. In stark contrast, the new tax regime largely disallows these deductions, making the old system more appealing for substantial tax savings.

### Affordable Housing Struggles

Data from Knight Frank India reveals a worrying trend: the affordable housing segment's share in total sales has plummeted from 54% in 2018 to just 21% in 2025. Despite overall stable housing sales, affordable housing transactions saw a 17% year-on-year decline in 2025. This slowdown is attributed to rising home prices, diminished disposable incomes, and restricted access to credit, placing considerable affordability pressure on buyers in this segment.

### Industry's Case for Higher Limits

Knight Frank has recommended boosting the Section 24(b) interest deduction cap from ₹2 lakh to ₹5 lakh. The objective is to enhance the tax efficiency of home purchases, especially for affordable and mid-income buyers, amidst rising EMIs and larger loan principal amounts. The consultancy also highlighted that the PMAY 2.0 housing value cap of ₹35 lakh often excludes genuine buyers in major cities where prices are substantially higher. They suggest raising this cap to ₹75 lakh in large urban centers.

Shishir Baijal, Chairman and Managing Director at Knight Frank India, stated, "The housing sector requires focused intervention to address growing structural imbalances. While residential markets have shown resilience, affordable housing continues to underperform due to declining affordability, elevated input costs, and limited end-user support."

Vikas Bhasin, Managing Director of Saya Group, added, "Increasing the deduction to at least ₹5 lakh would provide meaningful relief to buyers, improve EMI affordability, and give a sustained boost to genuine end-user demand across markets."

Ankit Kansal, Founder and MD of Axon Developers, noted the expansion of housing demand into Tier II and III cities, emphasizing that "revisiting tax deductions and income limits, along with supportive interest-rate signals and faster approvals, would be key to sustaining this momentum."