As Budget 2026 draws closer, expectations are rising among homebuyers and real estate developers alike. One of the most talked-about demands ahead of the Union Budget is a potential increase in the tax deduction available on home loan interest. With property prices climbing steadily across cities and borrowing costs remaining elevated, the middle class is hoping for meaningful relief from the government.

Currently, taxpayers can claim a maximum deduction of ₹2 lakh per year on home loan interest under the Income Tax Act. However, industry bodies and developer associations are now urging the government to raise this limit significantly—to as much as ₹5 lakh—to ease the financial burden on homebuyers and stimulate housing demand.

Why Home Loan Tax Relief Matters More Than Ever

For most Indians, buying a home is impossible without taking a home loan. Over the past few years, residential property prices have increased sharply, especially in urban areas and metro cities. At the same time, the overall loan amount required to purchase even a modest home has risen considerably.

As a result, annual interest payments for home loans have also gone up. In this scenario, the existing tax deduction cap of ₹2 lakh is increasingly being seen as inadequate, particularly for middle-income families who are already stretched by EMIs and household expenses.

Industry Push to Increase the Deduction Limit

Real estate developers’ associations have made a strong case ahead of Budget 2026, calling for an increase in the home loan interest deduction limit to ₹5 lakh. According to them, such a move would make homeownership more affordable and directly benefit first-time buyers.

They argue that enhanced tax relief would not only provide financial breathing space to salaried individuals but also boost demand in the real estate sector, which plays a crucial role in employment generation and economic growth.

Budget 2026 Could Be a Turning Point for Housing

With the Union Budget just days away, the real estate sector is optimistic that the government will take steps to accelerate housing growth. Experts believe that targeted tax incentives can revive buyer sentiment and encourage people who are currently postponing home purchases due to high costs.

Developers also point out that housing has strong multiplier effects, supporting industries such as cement, steel, construction materials, and home furnishings. Any policy support for homebuyers could therefore have a broader positive impact on the economy.

Rethinking the Definition of Affordable Housing

Another major demand from the real estate sector is a revision of the affordable housing price limit. At present, homes priced up to ₹45 lakh are classified as affordable housing. However, developers say this threshold was set several years ago and no longer reflects ground realities.

Construction costs, land prices, and raw material expenses have risen sharply over time. In major cities, finding a decent two-bedroom home within ₹45 lakh has become increasingly difficult. Industry players believe that revising this limit upward is essential to truly promote affordable housing and make government incentives more effective.

Call to Increase Standard Deduction on Rental Income

In addition to home loan benefits, developers have also suggested changes to taxation on rental income. Currently, property owners are allowed a standard deduction of 30 percent on rental income to cover repair and maintenance costs.

Industry bodies have proposed increasing this deduction to 50 percent. According to them, a higher deduction would make rental housing a more attractive investment option and encourage more individuals to invest in rental properties, helping to meet the growing demand for rented homes in urban areas.

What Homebuyers Are Watching Closely

Homebuyers, especially those from the middle-income segment, are closely tracking Budget 2026 announcements. A higher tax deduction on home loan interest could significantly reduce their overall tax liability and make EMIs more manageable.

If the government accepts these proposals, it could provide a much-needed boost to housing affordability while strengthening the real estate sector’s recovery.

All Eyes on Budget Day

As Finance Minister prepares to present Budget 2026, expectations from the housing and real estate sector remain high. Whether the government increases the home loan interest deduction to ₹5 lakh or revises affordable housing norms will become clear on Budget Day.

Until then, homebuyers and developers alike are hopeful that the upcoming budget will deliver policies that make owning a home more achievable and support long-term growth in the housing sector.