Buying a home is one of the biggest financial decisions for individuals, and home loans can provide significant tax benefits. Under the Income Tax Act, 2025, the availability of these benefits depends largely on whether the taxpayer opts for the old tax regime or the new tax regime. While the old tax regime continues to offer deductions for both principal and interest repayment, the new tax regime restricts most deductions, especially for self-occupied properties.
Understanding these provisions can help taxpayers evaluate the actual tax savings available and choose the most suitable tax regime.
Home Loan Tax Benefits Under the Old Tax Regime
Taxpayers opting for the old tax regime can continue to claim deductions on both the interest component and the principal component of a home loan, subject to the prescribed conditions.
Deduction for Home Loan Interest
For self-occupied properties, a deduction of up to ₹2 lakh per financial year can be claimed towards the interest paid on the home loan.
For let-out (rented) properties, the interest paid on the home loan can be claimed against the rental income. Under the Income Tax Act, 2025, the deduction limit for interest on certain let-out properties has been enhanced up to ₹3 lakh per year under specified lender structures, providing additional relief to eligible property owners.
Deduction for Principal Repayment
Taxpayers can claim a deduction of up to ₹1.5 lakh per financial year towards repayment of the principal amount of the home loan.
The deduction also covers:
- Stamp duty paid for the property.
- Registration charges incurred during property acquisition.
Additional Deductions for First-Time Homebuyers
Eligible first-time homebuyers may claim additional deductions under:
- Section 80EE – Additional deduction of up to ₹50,000, subject to prescribed conditions.
- Section 80EEA – Additional deduction of up to ₹1.5 lakh for eligible affordable housing loans, subject to the applicable conditions and eligibility criteria.
Joint Home Loans
Where two or more individuals jointly own a property and are also co-borrowers of the home loan, each co-owner may claim tax deductions separately based on their ownership share and actual contribution towards loan repayment.
Each eligible co-borrower can claim:
- Up to ₹2 lakh deduction towards interest, subject to the applicable limits.
- Up to ₹1.5 lakh deduction towards principal repayment, subject to the conditions of the relevant provisions.
The deductions are available individually and not collectively.
Pre-Construction Interest
Interest paid during the construction period of a property is known as pre-construction interest.
Under the Income Tax Act, 2025, accumulated pre-construction interest can be claimed in five equal annual instalments, beginning from the financial year in which the construction is completed.
The Act also provides explicit clarification regarding the computation of pre-construction interest and the timeline for claiming these instalments.
Home Loan Benefits Under the New Tax Regime
The Income Tax Act, 2025 makes the new tax regime the default tax regime, offering lower tax rates and higher standard deductions while removing most itemized deductions and exemptions.
As a result, home loan tax benefits are significantly restricted.
Self-Occupied Property
For self-occupied properties under the new tax regime:
- No deduction is available for principal repayment.
- No deduction is available for home loan interest.
- Additional deductions available to first-time homebuyers, such as those under Section 80EEA, are not available.
Therefore, taxpayers living in their own house generally cannot claim home loan deductions under the new tax regime.
Let-Out (Rented) Property
For rented or let-out properties:
- Home loan interest can be claimed against the rental income earned from that property.
- A flat 30% standard deduction is available on the net annual rental value towards repairs and maintenance.
However, if the home loan interest exceeds the rental income:
- The resulting loss from house property cannot be set off against salary income or any other head of income.
- The unabsorbed loss cannot be carried forward to future financial years under the new tax regime.
Comparison: Old Tax Regime vs New Tax Regime
| Home Loan Component | Old Tax Regime | New Tax Regime |
| Principal Repayment | Deduction up to ₹1.5 lakh available | Not allowed |
| Interest on Self-Occupied Property | Deduction up to ₹2 lakh available | Not allowed |
| Additional Deduction for Eligible First-Time Buyers | Available subject to conditions | Not available |
| Interest on Let-Out Property | Deductible against rental income | Deductible against rental income |
| Set-Off of House Property Loss | Permitted subject to applicable provisions | Not permitted against other income |
| Carry Forward of Unabsorbed Loss | Available as per applicable provisions | Not allowed |
| Standard Deduction on Rental Income | Available | Available |
Conclusion
The old tax regime continues to provide substantial home loan tax benefits through deductions for interest, principal repayment, and additional benefits for eligible first-time homebuyers. Joint borrowers can also claim separate deductions based on their ownership and repayment contributions.
Under the new tax regime, deductions relating to self-occupied properties are largely unavailable, although interest on let-out properties and the standard deduction on rental income continue to be permitted. Taxpayers should therefore carefully compare both regimes to determine which structure provides the most beneficial overall tax outcome based on their property usage, income profile, and available deductions.
Ushma & Associates – Chartered Accountants
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Disclaimer
This article is for general informational purposes only and does not constitute professional advice. Income Tax Laws are subject to changes, and interpretations may vary.
Readers are advised to consult a qualified professional before making any decisions