Home Loan Tax Benefits 2026: Old vs New Regime Under the New Act
Last updated: 13 October 2026
Quick answer: Under the Income-tax Act, 2025, home loan tax benefits for a self-occupied house exist only in the old regime: interest up to ₹2 lakh a year (section 22) and principal within the ₹1.5 lakh limit (section 123). The new regime allows interest only on a let-out house, with no loss set-off. For most salaried earners, the new regime still costs less tax even with a home loan.
Last updated: 13 October 2026 Quick answer: Under the Income-tax Act, 2025, home loan tax benefits for a self-occupied house exist only in the old regime: interest up to ₹2 lakh a year (section 22) and principal within the ₹1.5 lakh limit (section 123). The new regime allows interest only on a let-out house, with no loss set-off. For most salaried earners, the new regime still costs less tax even with a home loan. Key takeaways New numbers: sections 24(b) and 80C of the 1961 Act are now sections 22 and 123 of the 2025 Act, effective 1 April 2026. Self-occupied: ₹2 lakh interest cap, only if construction finishes within five years of borrowing; else ₹30,000. Let-out: interest fully deductible in both regimes, but loss set-off against salary only in the old regime, up to ₹2 lakh. Regime test: at ₹18 lakh salary, old-regime tax with a ₹60 lakh loan is ₹2.34 lakh vs ₹1.51 lakh in the new regime. Joint loans: each co-owner borrower gets separate limits. For decades, "80C and 24(b)" were the first words an Indian home buyer heard about tax. Since 1 April 2026 those section numbers no longer exist. The Income-tax Act, 2025 replaced the 1961 Act, and with it came new section numbers, a single "tax year" concept and a new regime that is now the default for most taxpayers. The underlying benefits are largely unchanged. What has changed is how few borrowers still gain from them. This guide explains every home loan tax benefit under the new law, how it differs between the old and new regimes, and how to work out which regime actually saves you more. What are the home loan tax benefits under the Income-tax Act, 2025? Home loan tax benefits are deductions that reduce your taxable income for the interest and principal you repay on a loan used to buy, build, repair or reconstruct a house. Under the 2025 Act they sit in three places: Benefit Old section (1961 Act) New section (2025 Act) Limit Regime Interest, self-occupied house 24(b) 22(1)(b), 22(2) ₹2 lakh (or ₹30,000) Old only Interest, let-out house 24(b) 22(1)(b) No cap Both Pre-construction interest 24(b) 22(1)(c) 5 equal instalments, within the caps above As above Principal, stamp duty, registration 80C 123 (with Schedule XV) ₹1.5 lakh, shared with PPF, EPF, ELSS etc. Old only Set-off of house property loss 71(3A) Chapter VII set-off rules; carry forward in section 110 ₹2 lakh a year; balance carried 8 years Old only The special first-time buyer deductions of the 1961 Act, sections 80EE and 80EEA, applied only to loans sanctioned up to March 2019 and March 2022 respectively. We could not confirm an equivalent in the 2025 Act, so anyone still claiming them should check with a tax professional. How much interest can you deduct on a self-occupied home? Section 21(6) treats a house you live in, or cannot occupy for any reason such as a job in another city, as having nil annual value. You can treat up to two such houses as self-occupied. Against this nil value, section 22 lets you deduct interest on the home loan, capped at: ₹2 lakh a year , if the loan was taken to buy or construct the house, construction or purchase is completed within five years from the end of the tax year in which you borrowed, and you have a certificate from the lender showing the interest. ₹30,000 a year in other cases, such as a loan for repairs or a delayed construction. The ₹2 lakh cap is a combined limit for all self-occupied houses, not per house. Interest paid before the house is complete is not lost: it is added up and deducted in five equal instalments from the year construction ends, within the same overall cap. What about the principal? Principal repaid on a housing loan, along with stamp duty and registration charges in the year paid, qualifies under section 123, which replaced section 80C. The ₹1.5 lakh limit is shared with EPF, PPF, ELSS, life insurance premiums, children's tuition fees and the rest. For a salaried person whose EPF alone is ₹70,000–₹1 lakh a year, the extra benefit from principal is often small. Our PPF vs ELSS vs SIP comparison (/insights/ppf-vs-elss-vs-sip-which-tax-saving-investment-actually-wins-in-2026) explains how that limit is usually filled. Home loan tax benefits compared under the old and new tax regimes Can you claim home loan interest under the new tax regime? Only for a let-out property. Section 202, which sets out the new regime, specifically excludes the section 22(1)(b) interest deduction for properties covered by section 21(6), that is, self-occupied homes. It also bars setting off any loss under "Income from house property" against other income, and treats that loss as fully used, so it cannot be carried forward. For a let-out house in the new regime, you deduct 30% of the net annual value as a standard deduction plus the full interest, but only against that property's rent. If interest exceeds the rent, the excess is simply lost. A let-out example Say you rent out a flat in Pune for ₹3 lakh a year, pay ₹20,000 municipal tax, and pay ₹4.75 lakh of interest in year one of a ₹60 lakh, 20-year loan at 8%. Net annual value is ₹2.8 lakh; after the 30% deduction (₹84,000) and interest, the result is a loss of about ₹2.79 lakh. Old regime: ₹2 lakh of that loss is set off against salary, saving up to ₹62,400 at a 30% slab. The remaining ₹79,000 is carried forward for up to eight tax years against future house property income. New regime: the loss cannot reduce your salary income and is not carried forward. Your house property income is simply nil. Read more on rental income rules in our rental income tax guide (/insights/rental-income-tax-30-percent-deduction-india) . Old vs new regime with a home loan: which saves more tax? The new regime has lower slab rates for tax year 2026-27: nil up to ₹4 lakh, then 5%, 10%, 15%, 20% and 25% in ₹4 lakh steps, and 30% above ₹24 lakh, with a rebate making income up to ₹12 lakh effectively tax-free and a ₹75,000 standard deduction for salaried taxpayers. The old regime keeps higher slabs but allows deductions. Consider a salaried buyer with a ₹60 lakh, 20-year loan at 8%. Year-one interest is about ₹4.75 lakh and principal about ₹1.27 lakh. Assume ₹1.5 lakh is already used under section 123 and ₹25,000 is claimed for health insurance. Bar chart comparing tax under old and new regimes with home loan deductions Gross salary Old regime, no loan Old regime, with ₹2 lakh interest New regime Cheaper ₹18 lakh ₹2,96,400 ₹2,34,000 ₹1,50,800 New, by ₹83,200 ₹25 lakh ₹5,14,800 ₹4,52,400 ₹3,19,800 New, by ₹1,32,600 Figures include 4% cess and exclude surcharge. Even with the maximum home loan interest deduction, the old regime loses comfortably at both income levels. The home loan saves ₹62,400 in the old regime, but the new regime's lower slabs save more. When does the old regime still win? Only when your total deductions beyond the ₹50,000 standard deduction are very large. Our calculations put the break-even at roughly ₹5.4 lakh of deductions at a ₹15 lakh salary, ₹6.4 lakh at ₹18 lakh, ₹7.1 lakh at ₹20 lakh and about ₹8 lakh at ₹25 lakh and above. Deductions needed for old tax regime to beat new regime at different salaries Home loan interest (₹2 lakh) plus section 123 (₹1.5 lakh) plus health insurance for yourself and senior parents (up to ₹75,000) adds up to ₹4.25 lakh. To cross the break-even, you typically also need a large HRA exemption, employer NPS contributions, or a let-out property loss. Our old vs new regime guide (/insights/tax-planning-guide-india) walks through all the levers, and HRA exemption explained (/insights/hra-exemption-calculation) shows how that piece is calculated. How do joint home loans work for tax? A joint home loan with your spouse can double the deductions available to the household, but only if both of you meet two conditions: you are co-owners of the property and co-borrowers on the loan. Each owner-borrower claims interest and principal in proportion to their share of repayment, within their own ₹2 lakh and ₹1.5 lakh limits. Steps for joint home loan tax benefits On the ₹60 lakh loan above, year-one interest of ₹4.75 lakh split equally gives each spouse about ₹2.38 lakh, so both can claim the full ₹2 lakh in the old regime. A single borrower would lose ₹2.75 lakh of deduction. Each spouse also chooses their tax regime independently, so one may use the old regime and the other the new. Our guide for newly married couples (/insights/newly-married-financial-checklist) covers this decision. What mistakes do borrowers commonly make? Claiming in the new regime: employers sometimes deduct less TDS for self-occupied interest; the claim then fails at filing and creates a tax demand. Missing the five-year rule: if an under-construction project is delayed beyond five years from the end of the borrowing year, the cap falls to ₹30,000. Selling too early: under the 1961 Act, principal deductions were reversed if the house was sold within five years of possession. Check whether your sale triggers a similar reversal under the new Act before selling. Ignoring the certificate: the section 22 deduction requires a certificate from the lender showing interest payable; download it each year. Top-up loans: interest on a top-up is deductible only if the money is used to buy, build or repair the house, with proof. How do other countries treat home loan interest? India is not alone in reducing mortgage tax breaks. The United Kingdom phased out mortgage interest relief for owner-occupiers by 2000. In the United States, the 2017 tax reform roughly doubled the standard deduction and capped deductible mortgage debt for new loans at $750,000, so far fewer households itemise. The global trend is similar: lower rates with fewer deductions, which is exactly the trade-off India's new regime makes. Should tax benefits drive your home loan decisions? No. A deduction reduces the cost of interest; it never makes paying interest profitable. Under the new regime, which most salaried taxpayers now use, your effective home loan rate equals the stated rate. That makes prepayment more attractive than before, as our prepay or invest analysis (/insights/prepay-home-loan-or-invest) shows. After October's rate hike, also see how to handle the EMI reset (/insights/home-loan-emi-vs-tenure-after-rate-hike) . Related reading The new Income-tax Act 2025: what changed for individuals (/insights/income-tax-act-2025-changes-individuals) Tax planning FY 2026-27: old vs new regime (/insights/tax-planning-guide-india) Prepay your home loan or invest? (/insights/prepay-home-loan-or-invest) Rental income tax: 30% deduction and loan interest (/insights/rental-income-tax-30-percent-deduction-india) Home loan guide 2026 (/insights/home-loan-guide-2026) Tax consultation at Money n Wealth (/products/tax) Frequently Asked Questions What is section 24(b) called under the new Income-tax Act 2025? The interest deduction formerly under section 24(b) is now in section 22 of the Income-tax Act, 2025, effective from 1 April 2026. Section 22(1)(b) allows interest on borrowed capital, section 22(1)(c) covers pre-construction interest in five instalments, and section 22(2) sets the ₹2 lakh and ₹30,000 caps for self-occupied houses. Can I claim home loan interest in the new tax regime in 2026? Only for a let-out house. Section 202 excludes the interest deduction for self-occupied properties in the new regime. For a let-out property, interest is deductible against that property's rent, but any resulting loss cannot be set off against salary or carried forward. Is home loan principal deductible under section 123? Yes, under the old regime only. Principal repaid on a loan to buy or build a residential house, plus stamp duty and registration charges in the year paid, qualifies under section 123 of the 2025 Act. The overall limit is ₹1.5 lakh, shared with EPF, PPF, ELSS, life insurance and other eligible items. Can husband and wife both claim home loan tax benefits? Yes, if both are co-owners of the house and co-borrowers on the loan. Each claims interest and principal in proportion to the share they actually repay, with separate limits of ₹2 lakh for interest on a self-occupied home and ₹1.5 lakh under section 123, in the old regime. Is it worth staying in the old regime just for home loan benefits? Usually not. Our calculations show that at a ₹18 lakh salary, the old regime needs about ₹6.4 lakh of deductions beyond the standard deduction to match the new regime. Home loan interest and principal together contribute at most ₹3.5 lakh, so you need large HRA or other deductions too. What is the deduction for home loan interest on an under-construction house? Nothing while it is under construction. Interest paid before completion is totalled and claimed in five equal instalments starting from the tax year construction finishes, within the ₹2 lakh overall cap for a self-occupied home. If completion takes longer than five years from the end of the borrowing year, the cap drops to ₹30,000. How much house property loss can be set off against salary? In the old regime, up to ₹2 lakh a year. The unabsorbed balance is carried forward for up to eight tax years under section 110, but can then be set off only against house property income. In the new regime, no set-off against other income is allowed and the loss lapses. Sources: Income Tax Department, section 22 (https://www.incometaxindia.gov.in/w/section-22-218) ; section 21 (https://www.incometaxindia.gov.in/w/section-21-196) ; section 202 (https://www.incometaxindia.gov.in/w/section-202-76) ; section 110 (https://www.incometaxindia.gov.in/w/section-110-102) ; ClearTax on section 123 (https://cleartax.in/s/section-123-income-tax-act-2025) . Worked examples are Money n Wealth calculations; verify your own position with a tax professional. Old or new regime with your home loan? The answer depends on your salary structure, HRA, co-ownership and rental income. Talk to Money n Wealth (/contact) for a free portfolio review, or see our tax consultation service (/products/tax) . This article is for general educational purposes only and does not constitute financial advice. Figures and examples are illustrative. Please consult a qualified financial adviser for guidance specific to your situation. Money n Wealth (Predics Fintech Services Pvt Ltd) is an AMFI-registered Mutual Fund Distributor (ARN-121995) and APMI-registered PMS Distributor (APRN07444); it is not a SEBI-registered investment adviser and may earn distribution commission on investments made through it.
Frequently Asked Questions
What is section 24(b) called under the new Income-tax Act 2025?
The interest deduction formerly under section 24(b) is now in section 22 of the Income-tax Act, 2025, effective from 1 April 2026. Section 22(1)(b) allows interest on borrowed capital, section 22(1)(c) covers pre-construction interest in five instalments, and section 22(2) sets the ₹2 lakh and ₹30,000 caps for self-occupied houses.
Can I claim home loan interest in the new tax regime in 2026?
Only for a let-out house. Section 202 excludes the interest deduction for self-occupied properties in the new regime. For a let-out property, interest is deductible against that property's rent, but any resulting loss cannot be set off against salary or carried forward.
Is home loan principal deductible under section 123?
Yes, under the old regime only. Principal repaid on a loan to buy or build a residential house, plus stamp duty and registration charges in the year paid, qualifies under section 123 of the 2025 Act. The overall limit is ₹1.5 lakh, shared with EPF, PPF, ELSS, life insurance and other eligible items.
Can husband and wife both claim home loan tax benefits?
Yes, if both are co-owners of the house and co-borrowers on the loan. Each claims interest and principal in proportion to the share they actually repay, with separate limits of ₹2 lakh for interest on a self-occupied home and ₹1.5 lakh under section 123, in the old regime.
Is it worth staying in the old regime just for home loan benefits?
Usually not. Our calculations show that at a ₹18 lakh salary, the old regime needs about ₹6.4 lakh of deductions beyond the standard deduction to match the new regime. Home loan interest and principal together contribute at most ₹3.5 lakh, so you need large HRA or other deductions too.
What is the deduction for home loan interest on an under-construction house?
Nothing while it is under construction. Interest paid before completion is totalled and claimed in five equal instalments starting from the tax year construction finishes, within the ₹2 lakh overall cap for a self-occupied home. If completion takes longer than five years from the end of the borrowing year, the cap drops to ₹30,000.
How much house property loss can be set off against salary?
In the old regime, up to ₹2 lakh a year. The unabsorbed balance is carried forward for up to eight tax years under section 110, but can then be set off only against house property income. In the new regime, no set-off against other income is allowed and the loss lapses.
Old or new regime with your home loan?
The answer depends on your salary structure, HRA, co-ownership and rental income. Talk to Money n Wealth for a free portfolio review, or see our tax consultation service .
