Home Loan Tax Benefit in New Regime: What Is Allowed in 2026

In the new tax regime, a home loan gives no tax benefit on a self-occupied house: neither interest nor principal can be deducted. The only home loan benefit that survives is for a let-out house, where interest is deductible against the rent under Section 22 of the Income-tax Act, 2025 (old Section 24(b)). Even then, a loss from that property cannot reduce your salary or other income, or be carried forward. If you want the ₹2 lakh interest and ₹1.5 lakh principal deductions, you must choose the old regime.

What is and is not allowed in the new regime

The new regime is the default from FY 2023-24 and continues under the Income-tax Act, 2025 as Section 202 (old Section 115BAC). Slabs for FY 2026-27 are unchanged: nil up to ₹4 lakh, then 5% to 30%, with a ₹75,000 standard deduction for salaried employees and a rebate that makes taxable income up to ₹12 lakh tax-free.

Figures as of October 2026, FY 2026-27.

Self-occupied house: nothing to claim

For a house you live in, the annual value is nil, and in the new regime the interest deduction for a self-occupied house is simply not available. The result is that income from that house is zero; there is no negative figure to set off against salary.

The same applies if you own a house but live elsewhere because of your job: if it is treated as self-occupied and not rented out, no interest deduction is available in the new regime.

Let-out house: interest is allowed, but only up to the rent

For a let-out house, income from house property is worked out as:

1. Gross annual value: usually the rent received or receivable for the year.
2. Less municipal taxes actually paid during the year = net annual value.
3. Less 30% standard deduction on net annual value, which covers repairs and maintenance.
4. Less interest on the home loan for the year, with no rupee cap.

If the result is positive, it is added to your income in both regimes. If it is negative, the treatment differs:

• Old regime: up to ₹2 lakh of the loss can be set off against salary and other income in the same year; the balance is carried forward for up to eight years against house property income only.
• New regime: the loss is ignored. It cannot be set off against any other income and cannot be carried forward. In practice, interest is deductible only up to the amount that brings house property income to nil.

Worked example 1: a let-out flat in both regimes

Illustrative. Sunil rents out a flat for ₹25,000 a month and pays ₹10,000 municipal tax in FY 2026-27. Interest on the home loan for the year is ₹2,50,000.

• Old regime: the ₹47,000 loss reduces his other income. In the 30% slab, that saves ₹47,000 × 31.2% (30% plus 4% cess) = ₹14,664.
• New regime: the ₹47,000 loss is lost. His house property income is taken as nil, and his rent is effectively tax-free, but he gets no further benefit.

If his interest were ₹1,50,000 instead, house property income would be ₹2,90,000 − ₹87,000 − ₹1,50,000 = ₹53,000, taxable in both regimes at his slab rate. The interest deduction is fully used in both regimes in that case.

Worked example 2: self-occupied house, old vs new

Illustrative. Meera earns a salary of ₹18 lakh in FY 2026-27. She pays ₹2,40,000 interest and ₹1,30,000 principal on a self-occupied flat. Her EPF contribution is ₹40,000 and she pays ₹25,000 for her own health insurance (old Section 80D).

New regime:

• Taxable income: ₹18,00,000 − ₹75,000 = ₹17,25,000.
• Tax: ₹4-8 lakh at 5% = ₹20,000; ₹8-12 lakh at 10% = ₹40,000; ₹12-16 lakh at 15% = ₹60,000; ₹16-17.25 lakh at 20% = ₹25,000. Total ₹1,45,000.
• Plus 4% cess ₹5,800 = ₹1,50,800.

Old regime:

• Deductions: standard deduction ₹50,000; interest capped at ₹2,00,000; Section 123 capped at ₹1,50,000 (principal ₹1,30,000 + EPF ₹40,000 = ₹1,70,000); health insurance ₹25,000. Total ₹4,25,000.
• Taxable income: ₹18,00,000 − ₹4,25,000 = ₹13,75,000.
• Tax: ₹2.5-5 lakh at 5% = ₹12,500; ₹5-10 lakh at 20% = ₹1,00,000; ₹10-13.75 lakh at 30% = ₹1,12,500. Total ₹2,25,000.
• Plus 4% cess ₹9,000 = ₹2,34,000.

Even with the full home loan deductions, the new regime is ₹83,200 cheaper for Meera. The old regime would need still more deductions, such as HRA exemption or NPS, to catch up. At higher incomes or with larger deductions, the answer can flip, so do not assume. Run both in the income tax calculator, and see new vs old tax regime for the break-even logic.

When the old regime is more likely to win

The old regime tends to come out ahead for home loan borrowers when:

• Income is high enough that most deductions save tax at 30%.
• Interest is at or above ₹2 lakh and the full ₹1.5 lakh Section 123 limit is used.
• There are other large deductions too, such as HRA exemption, NPS contributions under the old-regime sections, or health insurance for parents.
• There is a let-out property with a large loss that the old regime lets you set off against salary.

The new regime tends to win at incomes up to about ₹12.75 lakh of salary (where tax is nil after the rebate), and for borrowers whose deductions are modest. For the full list of home loan deductions in the old regime, read the pillar guide on home loan tax benefits.

Joint owners and the new regime

Each co-owner chooses a regime independently. One spouse can claim home loan deductions in the old regime while the other uses the new regime and claims nothing for a self-occupied house. If the house is let out, each co-owner reports their share of rent and interest under the regime they chose.

How to report it

1. Salaried: tell your employer which regime you want so TDS is right. If you choose the new regime, do not submit the self-occupied interest certificate for a deduction.
2. Let-out house: report rent, municipal tax and interest under income from house property in your return, whichever regime you choose.
3. Switching: salaried people without business income can pick the regime each year when filing. Our ITR filing checklist lists the documents to keep ready.

Key takeaways

• The new regime allows no home loan interest or principal deduction for a self-occupied house.
• For a let-out house, interest is deductible against rent under Section 22 (old 24(b)) in both regimes.
• In the new regime, a house property loss cannot be set off against other income or carried forward.
• Principal, stamp duty and registration fall under Section 123 (old 80C), available only in the old regime.
• In the example, an ₹18 lakh earner paid ₹83,200 less tax in the new regime despite full home loan deductions; compare both every year.