Home-loan principal and stamp duty under section 123 of the 2025 Act: what counts, and in which regime

Rules and rates as of 17 October 2026.

The short version

Under the Income-tax Act, 2025, which came into force on 1 April 2026, the deduction for repaying your home-loan principal and for the stamp duty on your flat sits in section 123. It does the job that section 80C did under the 1961 Act. The ceiling is the same: ₹1,50,000 a year, shared with everything else on the list.

And, as before, it is available only if you stay in the old tax regime. Under the new regime in section 202, which is the default, section 123 is switched off.

What section 123 actually says

Section 123 is short. An individual or HUF can deduct the amounts paid or deposited in the tax year that are listed in Schedule XV, up to ₹1,50,000, subject to the conditions in that Schedule. The detail is all in the Schedule.

Paragraph 1 of Schedule XV lists 26 kinds of payment, clauses (a) to (z). Life insurance premiums, your own provident fund contribution, tuition fees for two children, the five-year bank and post office deposits, the Senior Citizen Savings Scheme and notified mutual fund units are all there. The home is clause 1(r): payments for buying or building a residential house whose income is taxable under "Income from house property", or would be if you did not live in it.

The practical point: these 26 items share one ₹1,50,000 limit. If your salary slip already shows a large provident fund deduction, there may be little room left for the house.

What counts for the house

Paragraph 3 of Schedule XV spells out what clause 1(r) includes.

• Principal repaid on a home loan from a listed lender: the Central or a State Government, any bank including a co-operative bank, LIC, the National Housing Bank, an eligible housing-finance company, a co-operative society that finances housing, and certain employers (government bodies, public companies, universities and the like).
• Instalments to a development authority, housing board or co-operative society for a house allotted to you under its scheme.
• Stamp duty, registration fee and other expenses for transferring the house to you.

It also lists what does not count:

• The admission fee, the cost of shares and the initial deposit you pay to join a society or company.
• Any addition, alteration, renovation or repair after the completion certificate, or after the house is occupied or let out.
• Anything already deductible under section 22, which is where home-loan interest lives (the ₹2,00,000 cap for a self-occupied house). Interest and principal are two separate deductions; do not count the same rupee twice.

Two things the list leaves out are worth noticing. A loan from a relative or a friend is not on the lender list, so principal repaid to them does not qualify. And the Schedule's wording on the property does not say the house must be self-occupied; our reading is that a let-out house also qualifies, but confirm this with your CA.

Timing: stamp duty counts once, in the year you pay it

Section 123 covers amounts "paid or deposited in the tax year". Stamp duty and registration are usually paid in one go at registration, so they fall into a single tax year, and the ₹1,50,000 ceiling for that year does not stretch. A large stamp-duty bill can use up the whole limit on its own; whatever is above the limit is simply lost. It cannot be carried to next year.

Because clause 1(r) is tied to a house whose income is chargeable under house property, there is also a question about principal repaid while a flat is still under construction. One reading is that it is not deductible until the house is complete and its income becomes chargeable. The 2025 Act's text does not settle this in so many words; ask your CA before claiming it.

The five-year clawback

Paragraph 4 of Schedule XV keeps the old sting. If you transfer the house before five years have passed from the end of the tax year in which you got possession, the deduction is withdrawn. The amounts you claimed under clause 1(r) in earlier years are treated as your income in the year of sale and taxed then. The same happens if you get back, by refund or otherwise, a sum you claimed. If you are likely to sell within five years, factor that into whether the old regime is worth it.

New regime: section 123 does not apply

Section 202 sets the new-regime slabs (nil up to ₹4,00,000, rising in ₹4,00,000 steps through 5%, 10%, 15%, 20% and 25% to 30% above ₹24,00,000). Clause (2)(a)(xii) bars every deduction in Chapter VIII except a few listed ones, sections 124(1), 124(2), 125(2) and 146. Section 123 sits in Chapter VIII and is not on that list. So under the new regime, neither the principal nor the stamp duty gives you anything.

Section 202 also takes away the section 22 interest deduction on a self-occupied house (clause (2)(a)(v)), and bars setting off a house-property loss against your salary (clause (2)(b)(ii)).

If you have no business income, you choose the old regime each year, along with your return (section 202(4)(b)). Salaried buyers can switch back and forth year to year. If you have business or professional income, the choice is far more restricted, and a CA should advise.

A worked example

Neha earns a salary of ₹20,00,000 in tax year 2026-27. In April 2026 she registers a ready flat, paying stamp duty and registration of ₹4,20,000 (an illustrative figure; the rate depends on your state). She takes a ₹60 lakh loan at an illustrative 8.5% for 20 years and pays 12 EMIs during the year. Her own provident fund contribution is ₹86,400.

EMI = P × r × (1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), with P = ₹60,00,000, r = 8.5% ÷ 12, n = 240. That gives ₹52,069 a month. Splitting the first 12 EMIs month by month: interest ₹5,05,419, principal ₹1,19,414.

Section 123 claims: ₹86,400 (PF) + ₹1,19,414 (principal) + ₹4,20,000 (stamp duty) = ₹6,25,814. Allowed: ₹1,50,000. Unused: ₹4,75,814. Once PF is counted, the house adds only ₹63,600 of deduction.

Step	Old regime	New regime (s.202)
Salary	₹20,00,000	₹20,00,000
Standard deduction (s.19)	₹50,000	₹75,000
Home-loan interest (s.22, capped)	₹2,00,000	Not allowed
Section 123 (PF, principal, stamp duty, capped)	₹1,50,000	Not allowed
Taxable income	₹16,00,000	₹19,25,000
Tax before cess	₹2,92,500	₹1,85,000
Tax with 4% cess	₹3,04,200	₹1,92,400

Old regime: ₹1,12,500 + 30% × (₹16,00,000 − ₹10,00,000) = ₹2,92,500. New regime: ₹20,000 + ₹40,000 + ₹60,000 + 20% × (₹19,25,000 − ₹16,00,000) = ₹1,85,000. Both then take the 4% Health and Education Cess.

So in the year she buys, with the biggest interest bill she will ever pay and a stamp-duty bill on top, the new regime still costs her ₹1,11,800 less. The ₹63,600 of room that principal and stamp duty fill is worth ₹63,600 × 30% × 1.04 = ₹19,843 in the old regime. For the old regime to merely tie, her deductions beyond the ₹50,000 standard deduction would have to total about ₹7,08,333. Someone with a large HRA claim or other old-regime deductions may get there; many buyers will not.

What to check with your CA

• Whether your total old-regime deductions clear the break-even for your salary. Run both regimes, every year.
• Whether principal paid before completion can be claimed.
• If the flat is jointly owned, how each co-owner's share of the loan and stamp duty is claimed.
• Whether a sale within five years would trigger the clawback.