Union Budget 2026-27: no new tax relief for homebuyers, big push for city infrastructure
Finance Minister Nirmala Sitharaman presented the Union Budget 2026-27 in Parliament on 1 February 2026. For property buyers, the headline was what did not change: the ₹2 lakh annual limit on home-loan interest deduction for a self-occupied house stayed where it was. The real estate measures in the speech were aimed at infrastructure, city development and asset monetisation rather than direct tax relief for households.
What changed for homebuyers
The Budget’s direct-tax proposals included an amendment to section 22(2) of the Income-tax Act, 2025, which took effect on 1 April 2026. According to the Budget documents, the aggregate deduction for interest on borrowed capital will be inclusive of prior-period interest payable. Outlook Money reported that this clarifies pre-construction interest on a self-occupied home stays within the ₹2 lakh cap, as it did under the 1961 Act. The cap itself was not raised, although industry bodies had asked for a higher limit before the Budget.
One compliance change helps people buying from non-resident Indians. The speech proposed that tax deducted at source on the sale of immovable property by a non-resident be deposited through a challan based on the resident buyer’s PAN, instead of requiring the buyer to obtain a TAN.
Key numbers from the Budget speech
- Public capex: raised to ₹12.2 lakh crore in 2026-27, from an allocation of ₹11.2 lakh crore in BE 2025-26.
- Infrastructure Risk Guarantee Fund: to provide “prudently calibrated partial credit guarantees to lenders” for construction-phase risks.
- CPSE REITs: dedicated REITs to accelerate recycling of significant real estate assets of central public sector enterprises.
- City Economic Regions: ₹5,000 crore per region over five years, through a challenge mode with reform-cum-results based financing.
- Municipal bonds: a ₹100 crore incentive for a single bond issue of more than ₹1,000 crore by large cities; the AMRUT incentive for issues up to ₹200 crore continues.
- Fiscal deficit: estimated at 4.3% of GDP for 2026-27.
The focus on smaller cities
The speech said the government would “now focus on Tier II and Tier III cities, and even temple-towns, which need modern infrastructure and basic amenities”. It also said infrastructure work would continue in cities with over 5 lakh population. City Economic Regions are to be mapped around each area’s specific growth drivers, with funds released against reforms and results rather than as a flat grant.
The CPSE REIT proposal matters for investors because REITs let retail buyers hold a slice of income-producing property through listed units. Details on which assets will be placed in such trusts, and when, were not part of the speech.
What it means for buyers and investors
Outlook Money noted that the Budget offered no major targeted measures for affordable housing. For most households, the effect of the Budget will come indirectly, through roads, transit and civic infrastructure built with higher capex and municipal borrowing, rather than through lower taxes on a home purchase.
Buyers looking beyond the metros can track listings in cities such as Lucknow and Jaipur, and follow further Budget coverage on the RealtyMandi blog. Before relying on any tax change, it is worth confirming how it applies to an individual case with a tax adviser.
Sources
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