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AY 2026-27 (FY 2025-26). This guide reflects Budget 2025 new-regime slabs and the ₹12 lakh Section 87A rebate. Last reviewed 7 May 2026.
A ₹75 lakh home loan at 8.75% throws off roughly ₹6.5 lakh of interest in its first year. Under the old tax regime a chunk of that is deductible; under the new regime, on a self-occupied property, almost none of it is. The regime you pick quietly decides whether your loan is a ₹1 lakh tax saver or a pure interest cost.
Home loan deductions were once the reason salaried Indians stayed in the old regime. In 2026 that calculus has shifted further. Budget 2025 widened the new-regime slabs again and pushed the Section 87A rebate up to ₹12 lakh of taxable income — making the new regime the default winner for most borrowers. A specific profile still survives in the old regime: large self-occupied loan, joint borrowers in the 30% slab, heavy HRA on top.
What survives in each regime
| Deduction | Section | Old Regime | New (Self-Occupied) | New (Let-Out) |
|---|---|---|---|---|
| Interest (self-occupied) | 24(b) | Up to ₹2,00,000 | Not allowed | N/A |
| Interest (let-out) | 24(b) | No cap; loss capped at ₹2L | N/A | Allowed; loss capped at ₹2L |
| Principal repayment | 80C | Up to ₹1,50,000 (shared) | Not allowed | Not allowed |
| Stamp duty (year of payment) | 80C | Within ₹1.5L | Not allowed | Not allowed |
| First-time buyer (80EEA) | 80EEA | ₹1.5L (loans before Apr 2022 only) | Not allowed | Not allowed |
The headline: for a self-occupied property, the new regime gives zero home-loan tax benefit. For let-out property, interest deduction survives in both regimes, but the ₹2 lakh house-property-loss ceiling applies either way.
Warning
Section 80EEA has lapsed. Only loans sanctioned between April 2019 and 31 March 2022 qualify. If you hear someone quoting "₹3.5 lakh total home loan deduction," they are referencing a stack that is no longer available to fresh loans.
Section 24(b): the ₹2 lakh interest cap
Section 24(b) governs deduction of interest paid on a home loan. For a self-occupied property, the deduction is capped at ₹2 lakh per financial year, available only under the old regime and only if construction completes within 5 years of the loan.
On a ₹75 lakh loan at 8.75% over 20 years, first-year interest is roughly ₹6.5 lakh. You can claim only ₹2 lakh of it. The remaining ₹4.5 lakh is simply not deductible on a self-occupied home — a gap that grows starker as loan sizes rise while the cap stays frozen.
Section 80C principal: usually already full
Principal repayment qualifies under Section 80C, which has a combined ₹1.5 lakh ceiling covering EPF, PPF, ELSS, life insurance and tuition fees. Most salaried employees exhaust 80C through EPF and PPF alone. The home-loan principal then provides no incremental saving — it just crowds out a voluntary PPF or ELSS contribution.
This matters when modelling "tax saving" on a home loan: the principal deduction only counts if you had room left in 80C before you took the loan.
Let-out property: different rules, same cap
For a rented property, Section 24(b) has no upper limit on interest deduction. You can claim the entire interest against rental income. Where it gets punitive is the loss ceiling — the net loss under "income from house property" set off against other heads is capped at ₹2 lakh per year. Anything beyond carries forward for 8 years but only offsets future house-property income. A heavily leveraged investment property rarely delivers more than ₹2 lakh of current-year tax relief, regardless of actual interest paid.
Run your own regime comparison
Worked example: ₹75L loan, 8.75%, ₹25L salary (AY 2026-27)
A Bengaluru engineer: gross salary ₹25 lakh, home loan ₹75 lakh at 8.75% over 20 years, self-occupied. First-year EMI ~₹66,000/month, interest ~₹6.51 lakh, principal ~₹1.41 lakh.
Old regime: standard deduction ₹50k, 80C ₹1.5L (EPF + principal), 24(b) ₹2L, 80D ₹50k. Taxable income ₹20.5L. Tax with 4% cess: approximately ₹4,44,600.
New regime (Budget 2025 slabs): standard deduction ₹75k, no other deductions on a self-occupied home. Taxable income ₹24.25L. Tax with 4% cess: approximately ₹3,19,800.
Despite ₹3.5 lakh of home-loan-related deductions, the new regime is cheaper by about ₹1.25 lakh because the wider slabs and the ₹12L 87A coverage downstream more than compensate. The old regime only overtakes when combined deductions — home loan plus HRA plus 80C headroom plus NPS 80CCD(1B) plus 80D — push well past the break-even line, typically ₹6 lakh+ of stacked deductions at a ₹25L salary.
Don't guess with your own numbers. Run the tax regime comparison calculator and the salary tax calculator against your actual payroll. The old vs new regime comparison page lays out the break-even across income bands.
When the old regime still clearly wins
- Joint loan, both spouses in 30% slab. Two borrowers each claim ₹2L interest and ₹1.5L principal — up to ₹7L of combined deductions, at near-60% marginal rate across both returns.
- Let-out property with rental income. Full interest deductible in both regimes, but the old regime additionally lets you stack HRA and 80C.
- Loan sanctioned before April 2022. Existing 80EEA borrowers keep the extra ₹1.5L interest deduction.
- Metro tenant with own home in a different city. HRA stacks with Section 24(b) in the old regime only.
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For joint borrowers, the old regime can save over ₹1.5 lakh a year in combined household tax. But both co-owners must independently opt for the old regime at filing, and the loan repayment should actually flow from both of their accounts in proportion to the claim.
When to simply pick the new regime
Skip the old-regime optimisation if your only material deductions are EPF and 80D, you live in an owned home with no HRA, your loan is under ₹40 lakh, or you earn above ₹50 lakh where the new-regime compounding on the ₹15-20L band dominates. The filing is simpler, and for most of these profiles it is also cheaper.
Before April 30
Pull a provisional interest and principal certificate from your bank covering the full FY. Run both regimes in the comparison calculator with your projected numbers. Communicate the choice to payroll early — salaried taxpayers can switch at filing, but aligning the TDS avoids a refund-and-wait cycle. If you are weighing prepayment, remember that under the new regime prepaying is a pure interest-cost decision: no marginal deduction benefit tilts the math.
FAQ
The follow-up questions people usually ask after the main recommendation is already clear.
Can I claim home loan interest deduction under the new tax regime in 2026?
For a self-occupied property, no. Section 24(b) deduction of up to ₹2 lakh on home loan interest is available only under the old regime. Under the new regime, a self-occupied home gives you no interest deduction at all. The only exception is a let-out (rented) property, where interest on the home loan can be claimed against rental income even under the new regime — but any resulting loss is capped and cannot be set off against salary.
What is the maximum home loan interest deduction under Section 24(b)?
For a self-occupied property, Section 24(b) allows up to ₹2 lakh of interest deduction per financial year under the old regime, provided construction is completed within 5 years of the loan being taken. If construction exceeds 5 years, the cap drops to ₹30,000. For a let-out property, there is no upper cap on interest — the full interest can be claimed against rental income, but the resulting house-property loss that can be set off against other heads is capped at ₹2 lakh per year.
Is Section 80EEA still available in 2026?
No. Section 80EEA, which allowed an additional ₹1.5 lakh deduction for first-time affordable home buyers, applied only to loans sanctioned up to 31 March 2022. It has not been extended. If your loan was sanctioned within that window and met the stamp-duty cap (₹45 lakh) and other conditions, you can continue to claim it under the old regime until the loan runs its course, but new buyers in 2026 cannot avail this benefit.
Can principal repayment under Section 80C be claimed in the new regime?
No. Section 80C deduction of up to ₹1.5 lakh — which includes home loan principal repayment along with PPF, EPF, ELSS and life insurance premiums — is not available under the new regime. If you are counting on the principal component of your EMI to reduce tax, you must opt for the old regime.
On a ₹75 lakh home loan at 8.75%, how much tax does the old regime save?
In the first full year, interest is roughly ₹6.5 lakh and principal roughly ₹1.5 lakh on a 20-year tenure. A taxpayer in the 30% slab claiming ₹2 lakh under Section 24(b) and ₹1.5 lakh under Section 80C saves approximately ₹1.09 lakh in tax under the old regime (including cess). The new regime offers no equivalent deduction on a self-occupied property. Whether the old regime still wins after considering its higher slab rates depends on your total deductions — run the comparison in our tax regime comparison calculator.
What tax benefits do co-borrowers get on a joint home loan?
Each co-borrower who is also a co-owner can independently claim up to ₹2 lakh interest (Section 24(b)) and up to ₹1.5 lakh principal (Section 80C) under the old regime, in proportion to their share in the loan repayment. A couple who are joint owners and joint borrowers can therefore claim up to ₹4 lakh interest and ₹3 lakh principal between them — a meaningful uplift if both partners are in the 30% slab. Both must independently opt for the old regime.