You’ve booked your flat, the EMIs have started, and now tax season is asking a pointed question: does your home loan actually save you any tax? A few years ago the answer was an easy yes. Today it depends on which regime you pick, and many buyers are surprised by the result once they run the numbers.
This guide cuts through the confusion. We’ll show you exactly what you can claim under each regime, run a real example, and help you decide in about ten minutes.
| Quick answer Under the old tax regime, you can deduct up to ₹2 lakh of home loan interest (Section 24(b)) and up to ₹1.5 lakh of principal (Section 80C) each year on a self-occupied home. Under the new tax regime, you get no deduction on a self-occupied home, but you can still deduct interest on a rented-out property against its rent. For most salaried buyers earning ₹15–30 lakh, the new regime still works out cheaper unless total deductions cross roughly ₹7.5–8.5 lakh. |
What Changed for Home Buyers in 2026
Two updates matter this year. First, the Income-tax Act, 2025 came into force on 1 April 2026 and fully replaced the 1961 law. The new Act reorganises and renumbers sections but does not change the substantive home loan deduction limits. So if your CA mentions an unfamiliar section number, the benefit itself is the same one you know.
Second, Budget 2026 announced no changes to tax slabs or basic exemption limits, so last year’s slabs remain in force for FY 2026-27 (AY 2027-28).
Home Loan Tax Benefits Under the Old Tax Regime
Section 24(b): Interest Deduction of Up to ₹2 Lakh
This is the big one in the early years of a loan, when most of your EMI goes towards interest. You can deduct home loan interest up to ₹2 lakh a year for a self-occupied property, or the full amount for a let-out property, under the old regime.
Section 80C: Principal Repayment of Up to ₹1.5 Lakh
The principal part of your EMI counts towards the ₹1.5 lakh Section 80C limit. Stamp duty and registration charges on the purchase also qualify under 80C, but only in the financial year you buy. One catch: if you sell within 5 years of possession, the 80C deductions you claimed on principal get reversed and added back to your income in the year of sale.
Keep in mind that 80C is a shared bucket. Your EPF, PPF, life insurance and children’s tuition fees all compete for the same ₹1.5 lakh, so many salaried people fill it before the home loan principal even gets counted.
Pre-Construction Interest: Important for Under-Construction Flats
If you bought an under-construction home, you can’t claim interest until construction is complete. After that, the interest paid during the construction period is deductible in five equal instalments, starting from the year you get possession. It still sits within the ₹2 lakh annual cap for a self-occupied home, so plan for it rather than expecting a windfall.
Sections 80EE and 80EEA: Closed for New Loans
You may still see these mentioned online. Both 80EE and 80EEA are closed to fresh loans because their sanction windows shut years ago. If your loan was sanctioned in the eligible window, you can keep claiming. If you’re taking a loan now, ignore them.
Home Loan Deduction in the New Tax Regime
This is where most people get caught out. Under the new tax regime, which has been the default since AY 2024-25, you can’t claim a deduction for home loan interest on a self-occupied property. Principal repayment under 80C isn’t available either.
There is one exception worth knowing. If you let out the property, you can claim the full interest against the rental income, but the new regime doesn’t let you set off any resulting loss against your salary or other income. That loss also can’t be carried forward, so the benefit is capped at the rent you earn.
Old vs New Tax Regime Slabs at a Glance (FY 2026-27)
| Income (₹) | New Regime | Old Regime (below 60) |
| 0 – 2.5 lakh | Nil | Nil |
| 2.5 – 4 lakh | Nil | 5% |
| 4 – 5 lakh | 5% | 5% |
| 5 – 8 lakh | 5% | 20% |
| 8 – 10 lakh | 10% | 20% |
| 10 – 12 lakh | 10% | 30% |
| 12 – 16 lakh | 15% | 30% |
| 16 – 20 lakh | 20% | 30% |
| 20 – 24 lakh | 25% | 30% |
| Above 24 lakh | 30% | 30% |
| Standard deduction | ₹75,000 | ₹50,000 |
| Tax-free up to | ₹12 lakh (via 87A rebate) | ₹5 lakh (via 87A rebate) |
Under the new regime, a resident with net taxable income up to ₹12 lakh pays no tax because the Section 87A rebate goes up to ₹60,000. The old regime still allows deductions like 80C, 80D, HRA and home loan interest.
Real Example: ₹20 Lakh Salary With a Home Loan
Meet Rohit. He earns ₹20 lakh a year, lives in the flat he bought, pays ₹3 lakh in home loan interest this year, and his principal repayment easily fills 80C. He also pays ₹25,000 for health insurance.
| Old Regime | New Regime | |
| Gross salary | ₹20,00,000 | ₹20,00,000 |
| Standard deduction | ₹50,000 | ₹75,000 |
| Section 24(b) interest | ₹2,00,000 (capped) | Not allowed |
| Section 80C principal | ₹1,50,000 | Not allowed |
| Section 80D | ₹25,000 | Not allowed |
| Taxable income | ₹15,75,000 | ₹19,25,000 |
| Tax + 4% cess | ₹2,96,400 | ₹1,92,400 |
Even with ₹4.25 lakh of deductions, Rohit saves about ₹1.04 lakh by choosing the new tax regime. This surprises a lot of home buyers, but it’s the reality of the wider new-regime slabs.
When the Old Regime Still Wins
By our math, at incomes between ₹20 and ₹30 lakh, you need roughly ₹7.5 to 8.5 lakh of total deductions before the old regime beats the new one. People who usually cross that line include:
- Couples with a joint home loan who each claim their own ₹2 lakh interest and ₹1.5 lakh principal.
- Tenants who also own a let-out property and can combine HRA with home loan deductions.
- High earners who also use NPS (80CCD(1B)), 80D for parents and large HRA claims.
Joint Home Loan Tax Benefit: The Smartest Move for Couples
A joint loan is one of the few ways to make the old regime pay off. A couple owning a property 50:50 with a joint loan can together claim up to ₹4 lakh on interest and ₹3 lakh on principal under the old regime. To qualify, each person must be both a co-owner of the property and a co-borrower on the loan, and each must be paying their share of the EMI.
Each spouse also picks their tax regime separately. So one partner can stay in the old regime to use the home loan benefits while the other moves to the new regime if that suits their income better.
Buying a Second Home or an Investment Flat?
If you’re buying to rent out, the new regime isn’t a dead end. Interest on a let-out property is deductible against rent with no ₹2 lakh cap, so an investor with good rental income can reduce the tax on that rent substantially without giving up the lower new-regime slabs on salary.
How to Choose Your Regime in 5 Steps
- Add up every deduction you genuinely have: home loan interest, principal, 80C, 80D, HRA, NPS.
- Calculate your tax under both regimes, including cess.
- If you have a joint loan, run the calculation separately for each co-owner.
- Recheck every year, since your interest outgo falls as the loan ages.
- Salaried taxpayers can switch every year at filing time. If you have business income, the rules for switching back are stricter, so speak to your CA first.
Frequently Asked Questions
Can I claim a home loan tax benefit in the new tax regime?
Only on a let-out property, where interest is deductible against rental income. For a self-occupied home, the new tax regime gives no deduction on either interest or principal.
What is the maximum home loan tax benefit under the old regime?
Up to ₹2 lakh on interest under Section 24(b) and up to ₹1.5 lakh on principal under Section 80C each year for a self-occupied home, so ₹3.5 lakh in total per borrower.
Is the old or new tax regime better for home loan borrowers?
For most single-income salaried buyers, the new regime still works out cheaper. The old regime usually wins when total deductions cross roughly ₹7.5–8.5 lakh, which is common with joint loans or when HRA is also claimed.
Did the new Income Tax Act 2025 change home loan deductions?
No. The section numbers changed from 1 April 2026, but the limits and conditions for home loan tax benefits stayed the same.
Can both husband and wife claim home loan tax benefits?
Yes, if both are co-owners and co-borrowers and both repay the loan. Each can claim up to ₹2 lakh on interest and ₹1.5 lakh on principal under the old regime.
Can I claim interest on an under-construction property?
Not while it’s being built. Once you get possession, interest paid during construction is claimed in five equal yearly instalments, within the annual cap.
This article is for general information and isn’t tax advice. Please confirm your numbers with a chartered accountant before filing