Deduction on home loan interest to include prior period interest outgo for property construction

The FY27 budget has proposed that the income tax deduction allowed up to Rs 2 lakh on interest on home loans in case of a self-occupied property would now also include interest payable for the period prior to acquisition or construction of the property. The government will amend Section 22 (2) of the Income Tax Act, 2025 for this purpose, a move which will ensure continued relief to home loan borrowers under the new tax law effective from April 1, 2026. According to the Budget document, Section 22 of the Income Tax Act, 2025, deals with deductions in the case of income from house property. ''Further, section 22 (2) provides that the aggregate amount of deduction in the case of self-occupied property shall not exceed Rs 2 lakh where property is acquired or constructed with borrowed capital. However, this ceiling of Rs 2 lakhs has not included the deduction of prior-period interest payable for the acquisition or construction of property,'' it added. The document mentioned that Section 22 of the Act corresponds to Section 24 of the Income-tax Act, 1961. Under the old 1961 Act, the aggregate amount of deduction for the interest on the borrowed capital was inclusive of prior period interest payable. ''In this regard, it is proposed to amend section 22(2) of the Act so as to provide that aggregate amount of deduction for interest on borrowed capital shall be inclusive of prior-period interest payable,'' the budget document said.