Home Loan Interest Deduction for First-Time Buyers (Sections 130 and 131, Income Tax Act 2025)
The Income Tax Act 2025 has two extra deductions for interest on a home loan taken by a first-time buyer: section 130 (up to Rs 50,000 a year) and section 131 (up to Rs 1,50,000 a year). Both are for individuals, both need a loan from a bank or housing finance company, and both apply only to loans sanctioned within a fixed window: 1 April 2016 to 31 March 2017 for section 130, and 1 April 2019 to 31 March 2022 for section 131. A loan sanctioned today does not qualify.
So these sections matter for people who already hold such a loan and are still claiming the deduction in tax year 2026-27. The text below is from the Act as amended by the Finance Act, 2026. Last reviewed on 10 November 2026. This is information, not tax advice.
Which loans qualify for the extra home loan interest deduction?
Only the sanction date decides which section you look at. The section gives a deduction "for the tax year beginning on the 1st April, 2016 and subsequent tax years" (section 130(2)) or "for the tax year beginning on the 1st April, 2019 and subsequent tax years" (section 131(1)). The window limits when the loan was sanctioned, not how long you can claim.
In both cases the borrower must also not own any residential house on the date the loan was sanctioned. Section 131 is open only to an individual who is not eligible under section 130 (section 131(1)).
What are the conditions and limits under section 130 and section 131?
| Section 130 | Section 131 | |
|---|---|---|
| Who | Individual | Individual not eligible under section 130 |
| Loan from | Financial institution | Financial institution |
| Purpose | Acquisition of a residential house property | Acquisition of a residential house property |
| Loan sanctioned between | 1 Apr 2016 and 31 Mar 2017 (130(3)(a)) | 1 Apr 2019 and 31 Mar 2022 (131(2)(a)) |
| Loan amount | Not more than Rs 35 lakh (130(3)(b)) | No loan-amount limit in the section |
| Property value | Not more than Rs 50 lakh (130(3)(c)) | Stamp duty value not more than Rs 45 lakh (131(2)(b)) |
| No house owned | On the date of sanction (130(3)(d)) | On the date of sanction (131(2)(c)) |
| Maximum deduction | Rs 50,000 (130(2)) | Rs 1,50,000 in a tax year (131(1)) |
Who is a "financial institution" for this deduction?
Section 130(5)(a) says it means a banking company covered by the Banking Regulation Act, 1949, or a bank or banking institution referred to in section 51 of that Act, or a housing finance company. A "housing finance company" is a public company formed or registered in India with the main object of providing long-term finance for building or buying houses in India for residential purposes (section 130(5)(b)). Section 131(4) uses the same meaning. A loan from a relative or an employer is not a loan from a financial institution.
How much deduction do you get? Two worked examples
Example 1 (section 130), tax year 2026-27. Assumptions: Ravi is a resident individual. A bank sanctioned him a Rs 30,00,000 loan on 10 January 2017 to buy a flat worth Rs 45,00,000. He owned no house on that date. The interest payable on the loan for 2026-27 is Rs 2,10,000.
| Step | Test or working | Result |
|---|---|---|
| 1 | Sanction date within 1 Apr 2016 to 31 Mar 2017 | Yes, 10 Jan 2017 |
| 2 | Loan of Rs 30,00,000 not more than Rs 35,00,000 | Yes |
| 3 | Value of Rs 45,00,000 not more than Rs 50,00,000 | Yes |
| 4 | No house owned on sanction date | Yes |
| 5 | Interest payable Rs 2,10,000 against the cap of Rs 50,000 | Deduction = Rs 50,000 |
Example 2 (section 131), tax year 2026-27. Assumptions: Meena is a resident individual. A housing finance company sanctioned her a Rs 38,00,000 loan on 15 August 2020 for a flat with a stamp duty value of Rs 42,00,000. She owned no house on that date. Interest payable for 2026-27 is Rs 2,95,000.
| Step | Test or working | Result |
|---|---|---|
| 1 | Section 130 window (2016-17)? Sanctioned in 2020 | Not eligible under section 130 |
| 2 | Sanction date within 1 Apr 2019 to 31 Mar 2022 | Yes, 15 Aug 2020 |
| 3 | Stamp duty value Rs 42,00,000 not more than Rs 45,00,000 | Yes |
| 4 | No house owned on sanction date | Yes |
| 5 | Interest payable Rs 2,95,000 against the cap of Rs 1,50,000 | Deduction = Rs 1,50,000 |
The sections say the deduction is of interest payable and "shall not exceed" the cap. If the interest for a year is lower than the cap, the deduction is the lower figure. For example, Rs 38,000 of interest under section 130 gives a deduction of Rs 38,000, not Rs 50,000.
Who loses out? Two real-life examples
Sunita missed the window by days. Sunita's loan from a bank was sanctioned on 5 April 2022, and the flat's stamp duty value is Rs 40,00,000. Section 131(2)(a) ends at 31 March 2022, so neither section 130 nor section 131 applies, however low the price is.
Arjun already owned a house. Arjun took a loan in September 2020 for a Rs 35,00,000 flat. Five years earlier he had bought a small plot with a house on it in his village, and he still owned it on the sanction date. Section 131(2)(c) requires that he owned no residential house property on the date of sanction, so he fails the test. The deduction is decided by the position on that one date, not by what he owns later.
Can you claim this deduction under the default tax regime?
No, not unless you have opted out. Section 202(1) sets slab rates for individuals, and section 202(2)(a)(xii) says total income under it is computed without any Chapter VIII deduction other than sections 124(1), 124(2), 125(2) and 146. Sections 130 and 131 sit in Chapter VIII and are not on that list. They are available only to a person who exercises the option under section 202(4). Read the option conditions in section 202 for your own case before you rely on the deduction. Overall, Chapter VIII deductions together cannot exceed gross total income (section 122(2)). Our overview of deductions from total income explains the regime split.
Is there a general home loan interest deduction apart from sections 130 and 131?
Yes. Section 22(1)(b) allows the interest payable on borrowed capital used to acquire, construct, repair, renew or reconstruct a house as a deduction from house property income. For a self-occupied house (annual value nil under section 21(6)), the total interest deduction is capped at Rs 2,00,000 only if the house was acquired or built with the loan and completed within five years from the end of the tax year in which the loan was taken, and you hold the lender's interest certificate (section 22(2)(a), (4)). In any other case the cap is Rs 30,000 (section 22(2)(b)). Interest paid before the year of completion (pre-construction interest) is deducted in five equal instalments, starting in the year of completion (section 22(1)(c)). The Rs 2,00,000 cap applies in total across self-occupied properties (section 22(5)). Section 202(2)(a) lists section 22(1)(b) for self-occupied property among the deductions not allowed under the default regime, so this claim also depends on the section 202(4) option.
Example 3, tax year 2026-27. Assumptions: Kiran lives in his own flat, bought with a loan taken in 2023 and completed in 2025. Interest payable for 2026-27 is Rs 3,40,000 and he has the bank certificate. Deduction under section 22(2)(a) = lower of Rs 3,40,000 and Rs 2,00,000 = Rs 2,00,000.
Can the same interest be claimed twice?
No. Sections 130(4) and 131(3) say that where a deduction is allowed for interest under that section, no deduction is allowed for the same interest under any other provision of the Act, for the same or any other tax year. If you claim under section 130 or 131, check how the same interest is treated elsewhere, for instance in the house property computation, so that it is not counted twice. This article does not cover that computation.
What are the common mistakes with this deduction?
- Treating the window as a claim period. The dates are for loan sanction. The deduction continues in later tax years while you pay interest, within the annual cap.
- Using the wrong value test. Section 130 tests the "value" of the house (Rs 50 lakh); section 131 tests the stamp duty value (Rs 45 lakh).
- Overlooking the loan-size limit in section 130. A Rs 36 lakh loan fails section 130(3)(b) even if the house costs less than Rs 50 lakh.
- Claiming both sections. Section 131 is only for someone not eligible under section 130, and each loan fits at most one window.
- Counting a non-institutional loan. Only loans from a bank, banking institution or housing finance company qualify.
- Forgetting the regime. Without the section 202(4) option, Chapter VIII deductions outside the short list in section 202(2)(a)(xii) are not available.
Quick reference
| Point | Section 130 | Section 131 |
|---|---|---|
| Annual cap | Rs 50,000 | Rs 1,50,000 |
| Sanction window ends | 31 Mar 2017 | 31 Mar 2022 |
| Property limit | Rs 50 lakh value, Rs 35 lakh loan | Rs 45 lakh stamp duty value |
| Double claim on the same interest | Barred (130(4)) | Barred (131(3)) |
Where this is in the Act
- Section 130(1) and (2): deduction and the Rs 50,000 limit
- Section 130(3): sanction window, Rs 35 lakh loan limit, Rs 50 lakh value limit, no house owned
- Section 130(4) and (5): no double deduction; meaning of financial institution and housing finance company
- Section 131(1) to (4): the Rs 1,50,000 deduction, its conditions, no double deduction and the shared definition
- Section 122(2) and section 202(1), (2)(a)(xii), (4): overall cap and the regime position
How do CA firms keep track of these claims?
For a CA firm, the work is spread across many clients: which loan was sanctioned when, which clients have opted out under section 202(4), and which certificates and statements are still pending. Finexo's practice management software keeps those tasks and deadlines in one place for your client book. It does not compute tax or file returns for you.
This article explains the Income Tax Act 2025 (as amended by the Finance Act, 2026). It is general information, not tax advice. Confirm the position for a specific case with a qualified chartered accountant.
Frequently Asked Questions
Is there a home loan interest deduction for first-time buyers under the Income Tax Act 2025?
Yes, but only for older loans. Section 130 allows up to Rs 50,000 a year for loans sanctioned between 1 April 2016 and 31 March 2017, and section 131 allows up to Rs 1,50,000 a year for loans sanctioned between 1 April 2019 and 31 March 2022.
Can I claim section 130 or 131 for a loan sanctioned now?
No. Both sections limit the benefit to loans sanctioned within their windows (section 130(3)(a) and section 131(2)(a)). A loan sanctioned after 31 March 2022 is outside both.
What is the property value limit under sections 130 and 131?
Section 130 requires the house value to be not more than Rs 50 lakh and the loan not more than Rs 35 lakh. Section 131 requires the stamp duty value to be not more than Rs 45 lakh.
Can I claim both section 130 and section 131?
No. Section 131 applies only to an individual who is not eligible under section 130, and the same interest cannot be deducted under any other provision once it is allowed (sections 130(4) and 131(3)).
Who counts as a financial institution for the home loan interest deduction?
A banking company under the Banking Regulation Act, 1949, a bank or banking institution referred to in section 51 of that Act, or a housing finance company (section 130(5)(a), also used by section 131(4)).
Are sections 130 and 131 available in the default tax regime?
Section 202(2)(a)(xii) excludes Chapter VIII deductions other than sections 124(1), 124(2), 125(2) and 146 under the default regime. Sections 130 and 131 are not on that list, so they need the option under section 202(4).
Is there a home loan interest deduction for a loan taken today?
Yes, under section 22(1)(b), capped at Rs 2,00,000 for a self-occupied house if construction or purchase completes within five years from the end of the tax year of the loan and you hold the lender's certificate (section 22(2)(a)). Under the default regime, it needs the section 202(4) option for self-occupied property.