New Delhi, Feb. 2 -- The Union Budget 2026 has proposed a significant change that directly affects investors who borrow funds to invest in dividend-paying stocks or mutual funds. The proposal removes the existing tax benefit that allowed investors to claim a deduction on interest paid for such borrowings.

Currently, taxpayers are permitted to deduct a portion of the interest expense incurred for earning dividend income or income from mutual fund units, subject to a prescribed limit. This relief has been particularly relevant for investors who use borrowed money to build income-generating portfolios.

However, this is set to change.

"It is proposed to provide that no deduction shall be allowed in respect of any interest expenditure incur...