The Union Budget 2026 presents the government with a crucial opportunity to address long-standing challenges in the housing finance sector. With property prices rising sharply and household budgets under pressure, experts believe that targeted reforms aimed at improving affordability, transparency, and buyer confidence could significantly revive demand for home purchases.

According to Reserve Bank of India (RBI) data, outstanding housing loans in India have already crossed ₹27 lakh crore, highlighting both the growing demand for home loans and the financial burden on borrowers. Industry experts say Budget 2026 could play a pivotal role in easing this burden through tax incentives and policy support.

One of the key expectations from Budget 2026 is a revision in tax benefits on home loans. Atul Monga, Co-founder and CEO of Basic Home Loan, believes that increasing tax incentives is essential to counter declining affordability.

Currently, under Section 24(b) of the Income Tax Act, homebuyers can claim a deduction of up to ₹2 lakh on interest paid on housing loans for self-occupied properties. Experts suggest that the government may raise this limit to ₹5 lakh, which could provide significant relief to borrowers facing higher EMIs due to elevated interest rates and property prices.

Such a move is expected to directly improve affordability and encourage fence-sitters to move forward with home purchases.

Another major reform being discussed is the introduction of a separate deduction limit for home loan principal repayment. At present, principal repayment qualifies for tax benefits under Section 80C, which has an overall cap of ₹1.5 lakh.

However, Section 80C already includes several popular investment options such as provident fund, life insurance, ELSS, and tuition fees. As a result, homebuyers often find little to no remaining scope to claim deductions on principal repayment.

Experts argue that a dedicated limit for housing loan principal repayment would provide meaningful tax relief and make homeownership more financially viable, especially for middle-income families.

Despite stable demand, affordability has steadily declined in recent years. In several major cities, residential property prices have risen by nearly 30% over the past few years. In contrast, tax benefits on home loans have remained unchanged.

As a result, many households are now spending up to 40% of their income on EMIs, leaving limited room for savings and other expenses. This imbalance, experts say, makes a strong case for revisiting housing-related tax incentives in Budget 2026.

If the government enhances home loan deductions, borrowers could potentially save ₹40,000 to ₹75,000 annually, depending on their loan size and tax bracket. Additionally, there is a strong demand from industry players to revive the Credit Linked Subsidy Scheme (CLSS) under the Pradhan Mantri Awas Yojana (PMAY) for the middle-income group.

The revival of this scheme could lower effective interest rates by 1–2 percentage points, resulting in total savings of ₹3–5 lakh over the loan tenure, making homeownership significantly more attractive.

With housing loan volumes rising rapidly, experts also stress the need for reforms in loan processing and refinancing. High interest rates have made it difficult for borrowers to refinance existing loans.

The government may consider measures such as no-cost digital balance transfers and faster loan approvals to ease refinancing and improve customer experience. Such steps could further boost confidence among prospective homebuyers.

Overall, housing finance reforms in Budget 2026 could act as a strong catalyst for reviving residential real estate demand. By enhancing tax benefits, improving loan accessibility, and supporting middle-income buyers, the government can restore affordability and encourage more people to invest in homes.

If implemented effectively, these measures are likely to increase homebuyer interest and provide a much-needed push to the housing and allied sectors of the economy.