Union Budget 2026: What Home Buyers Need to Know About Affordable Housing
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The affordable housing price cap is currently set at ₹45 lakh, as of 2017. Experts expect the Union Budget 2026 to raise this to approximately ₹75-85 lakh for metro cities, reflecting current market prices.
You can claim up to ₹2 lakh on interest (Section 24b), ₹1.5 lakh on principal (Section 80C), and an additional ₹1.5 lakh on interest for affordable homes below ₹45 lakh (Section 80EEA).
The Credit-Linked Subsidy Scheme provides direct interest subsidies of up to ₹1.80 lakh to eligible buyers in the lower- and middle-income categories. It significantly reduces your overall home loan cost.
Developers prefer luxury projects that offer 25-30% profit margins compared to affordable housing's 10-12% margins. High land costs and construction expenses make affordable housing less profitable.
A higher price cap means more homes will qualify for benefits such as the 1% GST (instead of 5%), tax deductions under Section 80EEA, and CLSS subsidies. This can help save several lakh rupees on your home purchase.
A higher price cap means more homes will qualify for benefits such as the 1% GST (instead of 5%), tax deductions under Section 80EEA, and CLSS subsidies. This can help save several lakh rupees on your home purchase.
**Disclaimer: Interest rates and market conditions are subject to change. This information is accurate as of July 2025 and is meant for informational purposes only. Please consult with certified financial advisors for advice specific to your situation. Home loan approval is subject to the bank's terms and conditions.
Credit at sole discretion of Kotak Mahindra Bank Ltd. and subject to guidelines issued by RBI from time to time. Bank may engage the services of marketing agents for the purpose of sourcing loan assets.
This Article is for information purpose only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. Bank make no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Newsletter. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from Kotak. Kotak, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein.
Introduction
The Union Budget 2026 is expected to be a turning point for India's affordable housing sector.
For first-time home buyers, this budget could bring much-needed relief through policy reforms, tax benefits, and subsidy schemes.
Understanding what the Union Budget 2026 may offer can help you plan your home purchase more effectively.
Understanding the Affordable Housing Landscape
Current Market Dynamics
Home prices have risen sharply across major Indian cities, and the ratio of monthly home loan payments (EMIs) to income has increased significantly in recent years. For middle-income buyers, this ratio has jumped from 28% to 40% during the same period.
In cities like Bengaluru, buyers looking for properties under ₹1 crore are increasingly seeking more affordable options, while demand for budget housing has grown. These market dynamics underscore the relevance of the anticipated budget measures.
Supply Shift
The supply of affordable homes has shifted. In 2018, over 52% of new homes in India's top seven cities were priced under ₹50 lakh. As of 2025, this share has dropped to 17%. India continues to face significant urban housing shortages, which are expected to grow further by 2030.
Developers are increasingly focusing on luxury projects that offer better profit margins: 25-30% compared to just 10-12% for affordable housing. High land costs, rising construction expenses, and complex approval processes influence these investment decisions, highlighting the potential impact of anticipated developer incentives in the budget.
What to Watch Out for in Union Budget 2026
Higher Affordable Housing Price Cap
The most important change home buyers should watch for is the revision of the affordable housing price cap. Currently set at ₹45 lakh, this limit was established in 2017 and could see an upward revision to better serve today’s homebuyers.
Industry experts recommend increasing this cap to approximately ₹75 lakh for major metro cities like Delhi-NCR, Bengaluru, Hyderabad, and Pune, and to approximately ₹85 lakh for Mumbai. This change would allow more homes to qualify for benefits, such as the concessional GST rate of 1%, thereby directly reducing costs for buyers.
A higher price cap means more properties would qualify as "affordable housing," making thousands of homes eligible for tax benefits and subsidies that can significantly reduce your purchase cost.
Enhanced Credit-Linked Subsidy Scheme (CLSS)
The Credit-Linked Subsidy Scheme offers interest subsidies to eligible home buyers in lower and middle-income categories. It was revived under PMAY-Urban 2.0 in Budget 2024, providing subsidies of up to ₹1.80 lakh.
Union Budget 2026 is expected to expand this scheme by:
If expanded, CLSS could benefit approximately 1.5-2 million first-time home buyers over the next five years. This direct financial assistance can substantially reduce your home loan.
Improved Tax Benefits for Home Buyers
Currently, you can claim several tax deductions on home loans:
The real estate industry anticipates enhanced tax deductions in the Union Budget 2026 to make borrowing more affordable. Higher deduction limits would mean lower taxable income and more savings for home buyers.
Tax Incentives for Developers
Section 80-IBA provided a 100% tax holiday for developers building affordable housing projects between 2016 and 2021. This incentive encouraged developers to launch more affordable projects.
Reintroduction of this incentive in the Union Budget 2026 could significantly boost the supply of affordable homes.
More supply means more choices for home buyers and potentially better prices due to increased competition among developers.
Infrastructure and Project Completion Support
The government is expected to allocate approx. ₹15,000 crore to the SWAMIH fund to support project completion timelines. This measure will benefit thousands of homebuyers awaiting possession.
Additionally, Budget 2026 may introduce rental housing incentives, such as tax exemptions on rental income up to approximately ₹3 lakh for affordable housing properties. Better infrastructure development through metros, roads, and connectivity projects will also open new affordable housing locations.
Conclusion
Union Budget 2026 could reshape the affordable housing landscape for Indian home buyers. The expected policy reforms, including a revised price cap, expanded subsidies, and improved tax benefits, can make homeownership more accessible for millions of families.
As a prospective home buyer, staying informed about these budget announcements will help you make smarter decisions. If the government implements these measures, you could save lakhs of rupees through subsidies, tax benefits, and lower GST rates.
Watch the Budget closely and explore how Kotak Mahindra Bank’s home loan solutions can help you maximise these benefits and achieve your homeownership goals.
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