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A home loan is often the reason people stay in the old tax regime. In FY 2026-27, with the new regime's lower slabs and the ₹12 lakh rebate, that habit can cost money. This article compares both regimes with a home loan at different salaries, using our old vs new regime calculator.
Short answer
For a home you live in, home-loan interest of up to ₹2 lakh is deductible only in the old regime. But on its own it is rarely enough: with ₹2 lakh of interest, ₹1.5 lakh under Section 123 (earlier 80C) and ₹25,000 of health insurance, the new regime is still cheaper at every salary from ₹12 lakh to ₹40 lakh. The old regime only wins if you also have other large deductions, such as an HRA exemption, NPS or parents' health insurance.
How a home loan is treated in each regime
| Old regime | New regime | |
|---|---|---|
| Interest on a self-occupied home (Section 22, earlier 24(b)) | Up to ₹2 lakh a year | Not allowed |
| Principal repayment | Within the ₹1.5 lakh Section 123 limit | Not allowed |
| Interest on a let-out home | Deductible from its rent; a loss can be set off against other income up to ₹2 lakh | Deductible from its rent; a loss can't be set off against salary |
Salary-wise comparison with ₹2 lakh interest
Old regime with ₹1.5 lakh under Section 123, ₹25,000 under Section 126 (earlier 80D) and the ₹50,000 standard deduction; new regime with the ₹75,000 standard deduction. Tax includes 4% cess, FY 2026-27.
| Salary | New regime | Old regime, no home loan | Old regime, ₹2 lakh interest | Cheaper |
|---|---|---|---|---|
| ₹12 lakh | ₹0 | ₹1,11,800 | ₹70,200 | New |
| ₹15 lakh | ₹97,500 | ₹2,02,800 | ₹1,40,400 | New |
| ₹18 lakh | ₹1,50,800 | ₹2,96,400 | ₹2,34,000 | New |
| ₹20 lakh | ₹1,92,400 | ₹3,58,800 | ₹2,96,400 | New |
| ₹25 lakh | ₹3,19,800 | ₹5,14,800 | ₹4,52,400 | New |
| ₹30 lakh | ₹4,75,800 | ₹6,70,800 | ₹6,08,400 | New |
The home loan cuts old-regime tax by ₹62,400 from ₹15 lakh upwards, but the new regime's lower slabs save more.
Worked example: ₹18 lakh salary with ₹2 lakh interest
Old regime: deductions are ₹50,000 standard deduction + ₹1,50,000 under Section 123 + ₹25,000 health insurance + ₹2,00,000 home-loan interest = ₹4,25,000. Taxable income is ₹13,75,000, and tax with cess is ₹2,34,000.
New regime: taxable income is ₹17,25,000 after the ₹75,000 standard deduction, and tax with cess is ₹1,50,800.
The new regime saves ₹83,200 a year, even with the full ₹2 lakh of interest claimed in the old one.
What it takes for the old regime to win
On top of ₹1.5 lakh under Section 123 and ₹25,000 of health insurance, the old regime needs these extra deductions to match the new regime:
| Salary | Extra deductions needed | Gap left after ₹2 lakh interest |
|---|---|---|
| ₹12 lakh | ₹4,75,000 | ₹2,75,000 |
| ₹15 lakh | ₹3,68,800 | ₹1,68,800 |
| ₹18 lakh | ₹4,66,700 | ₹2,66,700 |
| ₹20 lakh | ₹5,33,400 | ₹3,33,400 |
| ₹25 lakh and above | ₹6,25,000 | ₹4,25,000 |
Things that can fill that gap in the old regime:
- NPS under Section 124 (earlier 80CCD(1B)): up to ₹50,000 more.
- HRA exemption if you pay rent, for example because you live in a different city from the home you own. See the HRA calculator.
- Parents' health insurance: a separate Section 126 limit.
If these don't add up to the gap, the new regime is cheaper. Employer NPS contributions are deductible in both regimes, so they don't change the comparison.
Things to check before you decide
- Salaried people can switch regime every year when filing, so you can move to the new regime now and back later if your deductions grow.
- Tell your employer your choice at the start of the year so TDS matches.
- Let-out property: if you rent the home out, the comparison changes, because interest is deducted from the rent in both regimes.
For break-even deductions at every salary without a home loan, see the old vs new regime guide.
Sources
Frequently asked questions
Can I claim home loan interest in the new tax regime?
Not for a home you live in. Interest on a self-occupied home, up to ₹2 lakh under Section 22 (earlier 24(b)), is allowed only in the old regime. For a let-out property, interest can be deducted from that property's rent in the new regime too, but a resulting loss can't be set off against your salary.
Is the old regime better if I have a home loan?
Not usually in FY 2026-27. With ₹2 lakh of interest, ₹1.5 lakh under Section 123 (earlier 80C) and ₹25,000 of health insurance, the old regime still costs more than the new one at every salary from ₹12 lakh to ₹40 lakh. You need other large deductions, such as an HRA exemption or NPS, as well.
Where does home loan principal go?
Principal repayment counts under Section 123 (earlier 80C) in the old regime, within the same ₹1.5 lakh limit as EPF, PPF and ELSS. It is not deductible in the new regime.
How much tax does ₹2 lakh of home loan interest save in the old regime?
At a ₹15 lakh to ₹40 lakh salary, ₹62,400 a year: ₹2 lakh taxed at 30% plus 4% cess. That is a real saving within the old regime, but it is usually not enough to close the gap to the new regime's lower slabs.
The CountYourTax team
We build free tax and salary calculators and check the rates against official government sources. See how we check our numbers.
General information, not tax advice. Please consult a qualified tax professional before filing or making financial decisions. Report an error in this article