New Tax Regime Home Loan Benefits: What You Can Actually Claim in 2026

What is the New Tax Regime (Section 115BAC)? 

Section 115BAC introduced a simplified tax structure with lower rates but fewer deductions. Starting FY 2023-24, it became the default regime for all taxpayers. Anyone wanting the old regime's deductions now must actively opt out. 

The trade-off is straightforward: lower tax slabs in exchange for giving up most exemptions and deductions. For people without significant tax-saving investments or loan interest payments, this works out cheaper. For those with heavy deductions—especially home loan borrowers—the math often favours sticking with the old regime. 

Key Changes for Home Loan Tax Benefits in the New Regime 

The new regime strips away the primary home loan benefits that borrowers have relied on for years: 

• Gone: Section 80C deduction for principal repayment (up to ₹1.5 lakh) 
• Gone: Section 24(b) interest deduction for self-occupied property (up to ₹2 lakh) 
• Gone: Sections 80EE and 80EEA additional deductions for first-time buyers 
• Gone: Set-off of house property loss against salary or other income
• Still Available: Interest deduction on let-out (rented) properties, but only against rental income 
• Still Available: Standard deduction of ₹75,000 for salaried individuals (increased in Budget 2024) 

Comparison of Old vs New Tax Regime on Home Loan Deductions 

The table makes clear why home loan borrowers often find the old regime more attractive. Someone paying ₹2.5 lakh annually in home loan interest and ₹1 lakh in principal would lose ₹3.5 lakh in deductions by choosing the new regime. 

Home Loan Deductions and Exemptions in the New Tax Regime 

No Deduction for Principal Repayment Under Section 80C 

This hits hardest. Under the old regime, principal repayment up to ₹1.5 lakh qualified for Section 80C deduction alongside other investments like PPF, ELSS, and life insurance premiums. The new regime eliminates this entirely. 

EMI payments continue as usual, but there's no tax relief on the principal portion. For someone repaying ₹50,000 annually in principal, that's ₹50,000 of taxable income that would have been exempt under the old system. 

Interest Deduction Only for Let-Out Properties Under Section 24 

Here's the nuance most people miss. The new regime doesn't completely eliminate home loan interest deductions—it just restricts them severely. 

For self-occupied properties (where the owner lives), no interest deduction is available. This wipes out the ₹2 lakh benefit that self-occupied homeowners claimed under Section 24(b). 

For let-out properties (rented to tenants), interest deduction still exists. But it can only be claimed against rental income from that property. If annual rent is ₹3 lakh and interest paid is ₹4 lakh, only ₹3 lakh can be deducted—the remaining ₹1 lakh doesn't reduce tax liability. 

Loss Set-Off Rules on House Property Income 

Under the old regime, if home loan interest exceeded rental income, the resulting loss (up to ₹2 lakh) could be set off against salary or other income. This provided significant tax relief even for properties generating modest rent. 

The new regime blocks this. House property losses can only be set off against house property income—meaning other rental properties owned by the same person. No set-off against salary, business income, or capital gains. 

For investors holding multiple properties, this might still work. For typical homeowners with one property, it's effectively useless. 

Standard Deduction and Other Allowed Home Loan Exemptions 

Not everything disappeared. The new regime still permits: 

• Standard deduction: ₹75,000 for salaried individuals and pensioners (increased from ₹50,000 in Budget 2024)
• Employer NPS contribution: Deduction under Section 80CCD(2) up to 14% of salary
• Agniveer Corpus Fund: Contributions under Section 80CCH
• Transport allowance: For specially-abled employees
• Conveyance allowance: For official travel expenses
• Daily allowance: For official tours 

These provide some relief but don't come close to replacing home loan deductions for most borrowers. 

Maximising Tax Benefits with Home Loans in the New Tax Regime 

Tax Planning Strategies for Rented Properties 

Since the new regime only allows interest deduction against rental income, property investors should price rent realistically (higher rent means more interest offset), maintain proper documentation (rent agreements, bank statements, interest certificates), and consider rental yield when selecting investment properties. 

Joint Home Loan Benefits and Ownership Considerations 

Joint loans between spouses can optimise taxes—but mainly under the old regime. Each co-owner claims deductions proportionate to their ownership share. Under the new regime, joint ownership helps only for let-out properties where each co-owner deducts their share of interest against their share of rental income. 

Timing Your Loan Repayments 

Interest paid during the financial year qualifies for deduction—not interest accrued. Making prepayments before March 31 increases interest paid in that year. However, this matters only under the old regime or for let-out properties; self-occupied properties in the new regime get no deduction regardless of timing. 

Tools and Calculators 

Before deciding on a regime, run the numbers both ways using online calculators that compare tax liability under both regimes. The Income Tax Department's portal has a comparison tool. Finnable also offers resources to help borrowers understand complete cost of ownership when evaluating loan options.