New Tax Regime vs Old Explained: Home Loan Exemptions in 2025

In 2020, there was a significant change in how taxes are structured. The government introduced a new tax system during the Union Budget, which meant a major overhaul in how individuals are taxed. This new system brought about lower tax rates across different income brackets but also did away with many tax deductions and exemptions that were available in the old system. In fact, approximately 70 such exemptions were removed.

Now, taxpayers have a choice to make between sticking with the old tax system or adopting the new one. This decision is crucial because it directly impacts the tax benefits you can avail yourself of when it comes to things like home loans. For example, deductions on the principal and interest paid on home loans could vary depending on which tax regime you choose.

Factors like home loan interest rates and Equated Monthly Installments (EMIs) become especially important in this decision-making process. These factors not only influence your current financial situation but also have implications for your Income Tax Returns (ITRs). Your choice of tax regime can significantly affect how much tax you owe or get refunded, which in turn affects your overall financial planning, including your home loan repayments.

Therefore, it's essential to carefully evaluate these factors before deciding which tax regime aligns better with your financial goals and obligations. By understanding the implications of each regime and how they impact your tax benefits, you can make an informed decision that best suits your individual circumstances.

What is the New Tax Regime?

Introduced in Budget 2020 and later updated in subsequent Union Budgets, the new tax regime offers a simplified and concessional tax structure with lower income tax slabs. It was designed to give taxpayers a more straightforward option, especially for those who prefer not to claim multiple exemptions and deductions.

However, one of the key trade-offs in the home loan in new tax regime context is that most tax deductions are not applicable, including popular ones such as deductions on home loan interest and principal repayment under Sections 24(b) and 80C.

This shift means that whether home loan is included in new tax regime becomes an important question for salaried professionals and homebuyers. While the regime may offer lower slab rates, it limits the tax-saving benefits traditionally associated with home loans.

If you’re planning to buy a home or already repaying a loan, it’s crucial to understand how home loan is considered in the new tax regime before making your tax regime selection.

Key Features of the New Regime

The new tax regime was introduced to simplify income tax calculations and offer reduced tax rates across multiple income slabs. However, it comes with the condition of forgoing most exemptions and deductions that taxpayers usually claim under the old system.

Notably, there is no home loan exemption in the new tax regime, and deductions under Sections 80C, 24(b) (for home loan interest), HRA, and LTA are not allowed. This makes the new regime more suitable for individuals with minimal investments or fewer tax-saving declarations.

While the structure offers lower tax liability upfront, it’s important to evaluate if the new regime home loan restrictions outweigh the home loan benefits available in the old regime.

What is the Old Tax Regime?

The old tax regime is the traditional income tax system that offers higher tax rates but allows taxpayers to claim a wide range of deductions and exemptions. It includes popular tax-saving options such as Section 80C, Section 24(b) for home loan tax deductions, HRA, LTA, and more.

This regime continues to be the preferred choice for individuals with ongoing financial commitments or investments - especially those with active home loans. The home loan exemption in old tax regime helps reduce taxable income significantly, making it ideal for salaried professionals and homeowners.

If you're wondering which tax regime is better for home loan benefits, the old regime may offer greater tax savings if you’re eligible to claim multiple deductions.

Key Features of the Old Regime

The old tax regime offers several tax-saving opportunities through deductions and exemptions. Taxpayers can claim benefits under Section 80C (investments like ELSS, PPF, and principal repayment of home loans), Section 80D (health insurance), and Section 24(b) for home loan interest deductions.

Exemptions for House Rent Allowance (HRA), Leave Travel Allowance (LTA), and standard deduction further reduce taxable income. This regime also encourages long-term savings and financial planning by offering benefits linked to investments and expenses.

For those with ongoing home loans, insurance premiums, or provident fund contributions, the home loan exemption in old tax regime makes it a smart choice. If you're evaluating which tax regime is better for home loan tax savings, the old regime may offer more advantages.

Difference Between New and Old Tax Regime

Choosing between the new and old tax regimes can significantly impact your taxable income and take-home pay - especially if you're managing investments like a home loan. The old regime allows for multiple deductions, whereas the new regime offers simplified slabs with limited exemptions. Here's a quick comparison of what’s changed in 2025:

Choose New Regime If:

Looking for a stress-free tax filing experience without the paperwork? The new tax regime is perfect for individuals who prefer a simplified tax structure and flat slabs without the need to submit multiple proofs or investment declarations. It’s especially suitable for those who don’t claim home loan deductions or other major exemptions.

This tax option is increasingly popular among young professionals and those with a straightforward income structure. While home loan interest in the new tax regime is not eligible for deductions, the ease of compliance and lower tax rates often outweigh the exclusions for many.

Consider the new regime if:

• You don’t have a home loan or claim minimal tax deductions
• You want fast, paperless tax filing with fewer documentation hassles
• You’re in a lower income bracket and don’t benefit from the old regime’s exemptions
• You prioritize simplified compliance over itemized deductions

Note: While the home loan deduction in new tax regime is not allowed under Section 24(b), you may still benefit from the increased rebate and standard deduction applicable from Budget 2025.

Choose Old Regime If:

Looking to maximize your tax savings through deductions and exemptions? The old tax regime could be the right fit - especially if you have a home loan or regularly invest in tax-saving instruments. It allows you to claim benefits that are not available under the new regime, helping reduce your overall taxable income.

You may benefit more from the old regime if you:

• Claim deductions on home loan interest and principal repayment under Section 24(b) and 80C
• Invest in tax-saving instruments like LIC, PPF, ELSS, NSC, or pay children’s tuition fees
• Prefer flexibility in customizing tax savings using various exemptions (HRA, LTA, medical insurance, etc.)

Tax Slab Comparison Between Old and New Tax Regime

Below is a table comparing the income tax rates of both the new and old tax regimes. This comparison of tax slabs aims to simplify the process of e-filing income tax returns.

In the new tax regime, it's noticeable that if your taxable income ranges between INR 5-7.5 lakhs, the tax rate is 10%, contrasting with 20% in the old regime. Furthermore, the previous tax slab of INR 10 lakhs and above has been split into three segments: INR 10-12.5 lakhs, INR 12.5-15 lakhs, and exceeding INR 15 lakhs. This breakdown can serve as a helpful guide for calculating income tax and filing income tax returns.

Also read: Is ITR for Home Loan Required? - 2024

Exemptions Not Allowed in the New Income Tax Regime

Unlike the previous tax system, the new tax structure lowers tax rates, but it comes with a trade-off: certain exemptions available before are no longer applicable. The list below outlines these exemptions and deductions that are now off the table in the new regime. This change will impact how you calculate your income tax returns and file them electronically. It's important to factor in these adjustments when assessing the overall impact of switching to the new tax system. Some exemptions no longer allowed under the new income tax regime include:

• Leave Travel Allowance
• House Rent Allowance
• Conveyance Allowance
• Relocation Allowance
• Children Education Allowance
• Standard Deduction on Salary
• Interest on Housing Loan
• Professional Tax

Deductions under Chapter VI A, which includes sections 80C, 80D, 80E, and so on. Now, let's delve into the next aspect: choosing the right tax regime, especially as a home loan borrower, as it significantly influences your decision-making and repayment process.

Income Tax Benefits on Home Loans in the Old Income Tax Regime

Tax Benefit on Principal Amount of Home Loan

If you've opted for the new tax regime 2025–26, it's important to note that deductions under Section 80C, including those for home loan principal repayment, are not applicable.

This means taxpayers cannot claim the ₹1.5 lakh deduction available under the old regime for the principal component of their home loan EMI, even for self-occupied properties. Additionally, expenses such as stamp duty, registration fees, and cess, which were earlier deductible under Section 80C, cannot be claimed under the new regime.

While the new tax structure offers lower tax rates, it comes at the cost of forgoing key tax benefits, especially for homebuyers with ongoing EMIs. To assess your effective savings, consider using a Home Loan EMI Calculator and compare the impact of both tax regimes.

Tax Benefit on Home Loan Interest Rate

You can also benefit from a tax deduction on the interest paid for your home loan. According to section 24 of the Income Tax Act, if your property is self-occupied, you can claim a maximum deduction of INR 2 lakhs per financial year. Similarly, if you own a second home that is vacant or inhabited by family members, such as parents, you can also claim a deduction on the interest paid for that property under the same section. However, it's important to keep in mind that the total deduction for interest paid on both home loans combined should not exceed INR 2 lakhs.

More Deduction on Home Loan Tax Interest Rate for Affordable Housing

If you purchase a house categorized as affordable housing, you can receive additional income tax benefits on the interest paid for the home loan, exceeding the standard INR 2 lakhs. You can claim a deduction of INR 1.5 lakhs per year. To qualify for this exemption from income tax on home loans, you must meet the following criteria:

• The home loan must be obtained from an approved financial institution, such as a housing finance company or bank.
• The stamp value of the property should not exceed INR 45 lakhs.
• You must not possess any other residential property on the date of loan approval.

Income Tax Benefits on Home Loans in the New Income Tax Regime

Under the new tax regime (2025–26), taxpayers lose out on key home loan tax benefits—especially for self-occupied properties. Here's a simplified breakdown:

No Tax Benefit for Self-Occupied Homes:

• Section 24(b): No home loan interest deduction for self-occupied property.
• Section 80C: No deduction on principal repayment of home loan.
• This means there is no tax benefit on home loan if you're living in the house or your family is occupying it.

Still Applicable for Rental Property:

• You can claim a deduction on home loan interest under Section 24(b) if the property is rented out.
• This is one of the few home loan exemptions in the new tax regime that still applies.

Summary:

• No deduction on home loan interest in new tax regime (for self-occupied homes).
• No home loan principal deduction under 80C.
• Only rental property interest deduction is still valid.

Tip: Evaluate your home loan benefits before switching regimes. If you're repaying a home loan, the old regime might offer more savings through exemptions.

Which Regime is Better if You Have a Home Loan?

The decision ultimately rests with you, but it's important to consider factors like your income, current EMI repayments, your tax filing segment, and other relevant aspects.

However, regarding claiming income tax benefits on home loans, the old tax system offers greater advantages compared to the new one. It provides more flexibility and options for deductions.

Before deciding, it's wise to carefully analyze the numbers and, if necessary, seek advice from a financial expert.

Union Budget 2025

The Union Budget 2025 introduced important updates that impact home loan borrowers, especially regarding tax deductions and benefits. Choosing between the old and new tax regimes has become a critical financial decision for homebuyers in 2025.

1. Higher Tax-Free Limit in New Regime

The new tax regime now offers zero tax liability for individuals earning up to ₹12 lakh annually. With the standard deduction raised to ₹75,000, many salaried individuals may benefit more from the simplified structure of the new regime.

2. Home Loan Benefits Only in Old Regime

The old regime continues to allow deductions on both home loan interest (up to ₹2 lakh under Section 24(b)) and principal repayment (up to ₹1.5 lakh under Section 80C). First-time homebuyers may also claim additional deductions under Section 80EE or 80EEA, where applicable.

3. Increased Deduction for Let-Out Properties

As per the 2025 budget, the interest deduction limit for let-out or rented properties has been increased from ₹2 lakh to ₹3 lakh per year under the old regime. This change is especially beneficial for property investors and landlords.

4. No Home Loan Deductions in New Regime

The new regime continues to exclude all home loan-related deductions. Borrowers cannot claim interest, principal, or other housing-related benefits under this system.

5. Which Regime Should You Choose?

The new regime suits individuals with limited deductions and incomes up to ₹12–12.75 lakh. However, if you have high EMIs and other tax-saving investments, the old regime may result in more savings through available exemptions.

6. More Stringent Documentation for Old Regime

Those opting for the old regime must maintain detailed records—such as home loan interest certificates, rent agreements, and proof of deductions—to validate claims during income tax filing.

FAQs

Q.1. Can I switch between the old and new tax regime?

A. Yes, salaried individuals can switch between the old and new tax regime every financial year while filing their ITR. However, individuals with business income can only switch once in a lifetime unless they stop earning business income.

Q.2. What deductions are allowed in the new tax regime?

A. The new tax regime removes most exemptions and deductions. However, a few are still allowed, such as:

• Employer's contribution to NPS (Section 80CCD(2))
• Standard deduction of ₹50,000 (from FY 2023–24)
• EPF contribution (under specific limits)
• Agniveer Corpus Fund contributions.

Q.3. Is ₹12 lakh tax-free under the new regime?

A. No, ₹12 lakh is not entirely tax-free in the new tax regime. However, due to the rebate under Section 87A and reduced slab rates, taxpayers with income up to ₹7 lakh have zero tax liability, and those earning ₹12 lakh will pay lower tax compared to the old regime.

Q.4. Is 80C allowed in the new regime?

A. No, deductions under Section 80C, such as home loan principal repayment, LIC premiums, PPF, and ELSS, are not available under the new tax regime. These are only applicable under the old tax regime.

Q.5. Is PF exempted in the new tax regime?

A. Yes, the employer's contribution to Provident Fund (PF) is tax-exempt, but you cannot claim additional deduction under Section 80C in the new regime. Interest earned on PF within prescribed limits remains tax-free.

Q.6. Is NPS allowed in the new regime?

A. Employee contributions to NPS under Section 80CCD(1B) are not deductible in the new regime, but employer contributions under Section 80CCD(2) are still allowed as deductions.

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