New Vs Old Tax Regime: Which One Works Better If You’re Paying a Home Loan?

Home loan EMIs take a chunk of your income every month. But if you’ve ever claimed deductions on them while filing your taxes, you already know that a home loan can also help reduce your tax outgo, if you have selected the right tax regime.

Ever since the government introduced the new regime with its latest income tax slab structure, many salaried individuals and self-employed professionals have been weighing one big question: Should I switch to the new regime or stick to the old one if I have an ongoing home loan?

To help you make a decision, we’ve broken down how each regime treats home loan benefits, whether it’s the interest you pay, the principal you repay or the status of your property. Here’s what changes, what stays and which option could help you save more. This will also help understand how to calculate income tax.

If You’re Living in the House You Bought on Loan

This is the most straightforward use case. You’ve taken a loan, you live in the property and you’re paying EMIs.

Under the old regime, you can:

• Claim up to Rs. 2 lakhs each year on the interest you pay
• Claim up to Rs. 1.5 lakhs on the principal repayment under Section 80C (this includes your EPF, PPF, insurance and more)

Under the new regime, you can:

• Still claim up to Rs. 2 lakhs on interest—but you cannot claim principal repayment
• Section 80C is not available here

What this means for you: If you’re still in the early years of your loan, when interest is high and you’re also contributing to EPF or insurance, the old regime will likely help you save more. The new regime skips out on those deductions.

If You’re a First-Time Homebuyer

There’s a little extra tax relief available for people who’ve taken their very first home loan.

Under both regimes, you can claim:

An additional deduction of up to Rs. 50,000 on interest paid (under Section 80EE), if you meet certain conditions like loan amount and property value.

What this means for you: This is one of the few benefits that hasn’t been scrapped in the new regime. So even if you’ve opted in for the lower rates, you don’t lose this entirely. But if you also want the regular Rs. 2 lakhs interest and Rs. 1.5 lakhs principal deductions, the old regime is still more generous.

If the Property Is Rented Out

This one’s different. When you rent out the property you took a loan for, the rules shift slightly.

In both regimes:

You can deduct the entire interest paid on the loan from your rental income—there’s no Rs. 2 lakhs cap here.

What this means for you: Whether you’ve chosen the old or new regime, rented properties allow you to claim the full interest amount. However, under the old regime, you can still claim other deductions, which may lead to a better overall tax outcome.

If Your Home is Still in the Construction Phase

If your home isn’t ready yet but you’ve already started repaying the loan, the interest you pay during construction doesn’t go waste.

• Under the old regime, you can claim the total pre-construction interest in 5 equal instalments (after possession), up to Rs. 2 lakhs per year
• Under the new regime, this benefit is available only if you opt into the old regime for that year

What this means for you: The old regime gives you a way to recover what you’re paying before you even move in. The new one doesn’t help much unless you temporarily opt out of it.

If You Took the Loan Jointly with a Spouse or Parent

Many people split home loans with family members to share EMIs and tax benefits.

In both regimes:

Each borrower can claim Rs. 2 lakhs on interest (if both are paying EMIs and co-own the property)

Only under the old regime:

Each borrower can also claim Rs. 1.5 lakhs on principal repayment under Section 80C

What this means for you: If both you and your co-borrower are eligible, the old regime gives you a bigger combined benefit—up to Rs. 7 lakhs in total deductions. The new regime only lets you claim interest.

Quick Take: Who Should Choose What?

Final Word

A home loan can help you save on taxes, but only if you’re in a regime that allows you to claim those savings. The new regime is cleaner and works well for people who don’t have many deductions or investments. But if you’re actively repaying a home loan, especially in the early years or with a co-borrower, the old regime is almost always more rewarding.

Before you file, take a moment to calculate how much of your EMIs could actually lower your taxable income. That one decision can make a big difference to how much you end up saving each year.

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