Home Loan Tax Benefits: New vs Old Tax Regime Which Saves You More in 2026

For most people, purchasing a home is one of the largest financial commitments they'll make, and the home loan tax benefit is often what makes it feel affordable. But with the New Tax Regime being the default option, many borrowers are confused now. Should you stick to the old system to keep claiming your home loan deductions, or is the new regime actually better for you?

In this blog, we'll simplify the home loan tax deduction rules under both regimes, so you can decide which regime will save you more money in 2026.

Quick Recap: Old Tax Regime vs New Tax Regime

The older tax regime has higher tax slabs, but you can claim a long list of deductions and exemptions such as home loan benefits, 80C investments and HRA.

The new tax regime, introduced under Section 115BAC of the Income Tax Act, 1961, is the default regime for most taxpayers from FY 2023-24 onwards. It offers lower slab rates and a simpler filing process, but disallows most deductions and exemptions available under the old regime, retaining only a limited set, such as the standard deduction and employer's NPS contribution under Section 80CCD(2).

This tradeoff is precisely why home loan borrowers should do the maths before settling on a regime because the right choice depends on your income, loan amount and how much you are paying in interest.

Also Read: Home Loan Tax Benefits Explained

Section 24: Deduction of Interest on Home Loan

The most discussed home loan tax benefit is under Section 24(b) of the Income Tax Act, which allows you to deduct the interest portion of your Equated Monthly Instalment (EMI) from your taxable income.

This is how it works in the old order:

• If the property is self-occupied, you can claim a tax deduction on home loan interest under Section 24 of up to ₹2 lakh per financial year.
• If you let out (rent) the property, there is no limit on the interest you can claim. But if it results in a loss, the maximum you can set off against your salary or other income in one year is ₹2 lakh and the rest you can carry forward for 8 years.
• If your property is under construction, you can claim the interest paid during this period in 5 equal instalments starting from the year you take possession (provided the construction is completed within 5 years from the date you took the loan). If it takes longer, the deduction falls sharply to just ₹30,000.

Home Loan Tax Deduction on Principal: Section 80C

Besides the interest, the principal component of your EMI is also eligible for home loan tax deduction, but only under the old regime.

• Section 80C allows you to claim a deduction of up to ₹1.5 lakh on principal repayment along with other 80C investments such as PPF, ELSS and life insurance premiums.
• You cannot deduct any amount of principal you have paid off, regardless of the amount, under the new regime.
• In case you sell the property within 5 years from the date of taking possession, the deduction claimed under Section 80C will be reversed and added to your taxable income in the year of sale.

Home Loan Deduction in New Tax Regime: What's Actually Left?

A common misconception among borrowers is that no home-loan-related benefits exist under the new regime. The new regime doesn't get rid of everything to do with your home loan; it just limits the scope.

Here is the summary of the home loan deduction under the new tax regime:

For self-occupied homes, all home loan deductions are available only under the old tax regime as per tax guidance for FY 2025-26 (AY 2026-27). Benefits under section 24(b), 80C, 80EE, or 80EEA are not allowed on self-occupied properties under the new tax regime.

Which Regime Actually Saves You More in 2026?

It depends on how much you can claim as deductions.

Example: Suppose your annual income is ₹18 lakh.

• Old Regime: If you claim ₹2 lakh as home loan interest, ₹1.5 lakh under Section 80C, and ₹25,000 under Section 80D, your taxable income reduces to ₹14.25 lakh, which can lead to lower tax.
• New Regime: If you have only ₹40,000 in home loan interest and no major deductions, your taxable income remains close to ₹18 lakh, making the new regime more tax-efficient due to its lower tax rates.

Rule of thumb: Higher deductions generally favour the old regime, while fewer deductions usually make the new regime a better choice.

Most income tax portals and lenders have free calculators for this very purpose, so before filing, it’s worth calculating your tax liability under both regimes since income levels, loan size and personal deductions vary widely.

Also Check out: IIFL’s Home Loan Tax Benefit Calculator

Conclusion

With the new tax regime becoming the default, the landscape of tax benefits for home loans has changed quite a bit. If you are a person who likes simplicity and doesn’t have too many other deductions, the new regime might actually save you more. But if you are in the early years of a big home loan, the Section 24 and 80C benefits of the old regime can still add up to real and meaningful savings.

If you have higher home loan interest and other eligible deductions, the old tax regime may help you save more. If your deductions are limited, the new tax regime could be a better fit. Compare your tax liability under both regimes before deciding. If you're planning to buy a home or refinance an existing loan, IIFL Home Loans offers competitive interest rates, quick approvals, and flexible repayment options to help you achieve your homeownership goals.