As March 31, 2026 approaches, home loan borrowers across India start thinking about one common question: should I prepay my home loan before the financial year ends to save tax and interest? While prepayment can look attractive during tax season, rushing into it without numbers can hurt liquidity and long-term returns.
The right decision depends on loan cost, tax limits, and what your surplus money can earn after tax elsewhere.
A simple real-life example
Rohit Nag, a 34-year-old professional from Kolkata, has a home loan of ₹40 lakh. To fully utilise the ₹2 lakh interest deduction under Section 24(b) for FY 2025-26, he made a partial prepayment of ₹2 lakh before March 31.
This reduced the principal on which interest was calculated for the year, slightly lowering his interest outgo while still keeping enough cash aside for emergencies and future investments.
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Don’t make a deadline-driven decision
Experts advise borrowers to separate emotion from economics.
If your surplus funds are earning less (post-tax) than your home loan interest rate especially in the early years of the loan partial prepayment can make sense. But if you can earn similar or higher post-tax returns elsewhere, prepaying just because March 31 is near may not be ideal.
👉 Smart move: First, compare numbers using a Home Loan EMI Calculator to see how much interest you actually save with prepayment.
Why March 31 matters and why it mostly doesn’t
March 31 is an accounting cut-off, not an economic turning point.
- Prepayments made before March 31 reduce interest for the current financial year
- They appear in the annual loan statement for FY 2025–26
- But no extra tax benefit is created beyond:
- ₹2 lakh interest limit under Section 24(b)
- ₹1.5 lakh principal limit under Section 80C
From a long-term perspective, a prepayment made in April 2026 delivers almost the same total interest savings as one made in March. The difference is mostly about when you get the benefit, not how much.
Tax efficiency: March vs April prepayment
- March prepayment:
Helps optimise tax deductions for FY 2025-26 - April prepayment:
Pushes benefits into FY 2026-27
But tax saving should never come at the cost of:
- Breaking emergency funds
- Taking on cash-flow stress
- Missing better post-tax investment opportunities
👉 Tip: If you are unsure, run both scenarios using a Home Loan Prepayment Calculator.
How to decide whether you should prepay before March 31, 2026
Use this 3 step framework:
1️⃣ Secure your emergency fund
Keep 6-9 months of expenses in liquid savings. Only surplus beyond this should be considered for prepayment.
2️⃣ Check your tax limits
If you have already fully utilised:
- Section 24(b) interest limit, and
- Section 80C principal limit,
then additional prepayment gives zero extra tax benefit for the year.
3️⃣ Compare loan cost vs alternatives
Prepay only if your effective home loan interest rate is clearly higher than the expected post-tax return from investments like FDs, debt funds, or other low-risk options.
In most cases, partial prepayment offers the best balance between interest savings and liquidity.
The bottom line
Prepaying your home loan before March 31, 2026 can improve tax efficiency and reduce interest marginally, but it should never be a rushed decision. The smartest borrowers focus on cash-flow comfort, emergency readiness, and post-tax returns not just the calendar.
Before taking action, always check real numbers instead of assumptions.
Does prepaying before March 31 save more interest?
It saves a small amount of interest for the current year, but long-term interest savings are almost the same even if you prepay in April.
Can I get extra tax deduction by prepaying more?
No. Tax benefits are capped under Section 80C and Section 24(b). Prepaying beyond these limits gives no additional tax advantage.
Is partial prepayment better than full prepayment?
For most borrowers, yes. Partial prepayment reduces interest while preserving liquidity for emergencies and investments.
Should first-time homebuyers prepay early?
Early-stage borrowers benefit more from prepayment, but only if emergency funds and tax-efficient investments are already in place.