As of April 9th, 2025, the RBI reduced the repo rate by 25 basis points (bps). It brought it down from 6.25% to 6.00%. This is the second reduction in 2025, with the previous cut also being 25 bps in February 2025.
The Reserve Bank of India (RBI) provides funds to commercial banks at a specified interest rate called the repo rate. When banks face a shortage of funds or need to meet regulatory requirements, they can borrow money from the RBI at this rate.
As of April 9th, 2025, the RBI reduced the repo rate by 25 basis points (bps). It brought it down from 6.25% to 6.00%. This is the second reduction in 2025, with the previous cut also being 25 bps in February 2025. However, the reverse repo rate (the rate at which banks can deposit their surplus funds with the RBI) remains unchanged at 3.35%.
This decision to lower the repo rate directly impacts the home loan interest rates. Are you also a home loan borrower? Can your EMIs decrease? In this article, let’s understand in detail how RBI’s repo rate cuts are expected to impact home loan interest rates in 2025. Also, we will study the various implications of an income tax notice section 142(1) on home loan borrowers.
The RBI’s repo rate cuts in 2025 are set to make home loans cheaper. However, the extent and speed of benefit depend largely on the:
and
Let’s understand in detail:
When the RBI reduces the repo rate, borrowers with “floating-rate home loans” are likely to see a decrease in their interest rates. For the unaware, such a home loan is directly linked to the repo rate.
The home loan interest rates on this type are adjusted periodically (usually every three months), as mandated by RBI guidelines. Therefore, when the repo rate decreases:
and
However, the exact timing of the rate adjustment varies. It depends on the specific reset dates set by the lending bank. As a borrower, you can expect the reduction to be applied within a quarter. However, some banks may pass on the benefits sooner, while others may delay the adjustment slightly.
The impact of the repo rate cut is less immediate and less direct for borrowers with loans linked to older benchmarks, such as:
or
These lending rates are calculated based on a bank’s cost of funds and not the repo rate. As a result, the reduction in the repo rate may not be fully or quickly passed on to borrowers under these benchmarks.
Additionally, MCLR and base rate-linked loans usually have longer reset periods. Usually, it ranges from three months to one year. Borrowers with such loans may not experience a decrease in home loan interest rates until the next reset period.
However, if you, as a borrower, want to lower your EMI, you may consider switching to repo-linked loans.
Home loans with fixed interest rates remain unaffected by changes in the repo rate. Fixed-rate loans maintain the same interest rate (regardless of fluctuations in the repo rate) for:
or
Consequently, borrowers with fixed home loan interest rates will not benefit from the current repo rate reduction. However, in 2025, if you consider refinancing your loans, you may find it advantageous to switch to a floating-rate or repo-linked loan.
But before making this decision, you should evaluate the costs associated with refinancing. Usually, while transferring home loans, you have to incur:
Thus, always compare these costs against the expected savings in interest payments.
It entirely depends on your loan type! Study the table below:
Loan type | Impact of repo rate cut | Speed of transmission |
Repo-linked home loans | Immediate reduction in rates | Within 1 to 3 months |
MCLR/ Base rate-linked home loans | Partial and delayed transmission | Several months. Usually, not fully passed on. |
Fixed-rate home loans | No immediate impact | None (unless refinanced) |
According to SBI Research, the RBI is expected to further reduce the repo rate by 1.25% (125 basis points) in this financial year. This would bring the repo rate down to a range of 5.0% – 5.25% by March 2026.
The central bank is projected to implement these cuts in stages:
If these predictions hold, you could see substantial reductions in home loan interest rates and EMIs over the next few quarters.
SBI Research also suggests that the RBI might consider implementing larger cuts of 50 basis points in one go, rather than spreading the cuts across smaller tranches of 25 bps each.
Such larger cuts will have a more immediate impact on home loan interest rates and provide quicker relief to borrowers. However, the likelihood of such jumbo cuts will depend on:
Income tax notice section 142(1) is issued by the Income Tax Department to request additional information from a taxpayer. The notice may be sent even if you have already filed your tax return.
Usually, it requires you to provide documents related to your:
The purpose is to verify the accuracy of your tax return or gather more details for assessment. Have you also received an income tax notice section 142(1)? Let’s understand its three major implications:
If you have taken a home loan, the income tax notice section 142(1) may require you to submit documents related to your loan, such as:
This happens because the tax authorities may want to verify deductions claimed under Sections 24(b) and 80C. For the unaware, under these sections, you are allowed to reduce your taxable income with these amounts:
and
If there are discrepancies between the information provided and the details available with the tax department, it could result in a reassessment of your income.
If you are in the process of applying for a new home loan and receive an income tax notice section 142(1), it can complicate matters! Usually, lenders consider it a red flag, as it indicates your financial situation is under review.
As a result, banks may:
or
If the issue is unresolved, it may even result in the rejection of your application.
Failure to respond to an income tax notice section 142(1) can lead to a “Best Judgement Assessment”. In this type of assessment, the tax officer makes an income estimate based on available information.
This may result in an increased tax demand or penalties, which could affect your ability to repay the home loan. Non-compliance also impacts your credit score and makes it harder to secure future loans.
If you are a home loan borrower and have received an income tax notice section 142(1), you must respond to it accurately. With the implementation of the Faceless Assessment Scheme, nearly all income tax assessments are now conducted electronically.
Thus, to respond online, you should follow these steps:
In 2025, the RBI’s repo rate cuts are expected to reduce home loan interest rates. However, the impact varies based on loan type. Repo-linked loans will see immediate rate reductions within a quarter, while MCLR and base rate-linked loans will see slower and partial transmission. On the other hand, fixed-rate loans remain unaffected unless refinanced.
Additionally, research shows a total of 1.25% repo rate cut by March 2026. If this happens, it could further lower EMIs and home loan interest rates.
However, receiving an income tax notice section 142(1) can complicate matters! It can delay your loan processing time and impact your creditworthiness. Thus, as a home loan borrower, you should respond promptly to such notices and make timely submissions of requested documents.