Here is a simplified guide to help salaried individuals choose between the old and new tax regimes, especially when repaying a home loan.
Saloni Kumari | May 12, 2025 |
Should You Choose Old Tax Regime Just Because You Have Home Loan?
The Union Budget 2025 made big changes to how salaried people pay income tax. One major update is that under the new tax regime, the basic income exempt from tax has been raised to Rs. 12 lakh. This means that many people may not have to pay any tax at all, even without claiming any deductions. Because of this, many traditional tax-saving options may no longer be necessary.
The new tax regime is meant to make filing taxes easier. However, the downside is that many tax deductions available in the old regime are not allowed here. This includes popular ones like House Rent Allowance (HRA), Leave Travel Allowance (LTA), tax-saving investments under Section 80C (like PPF and ELSS), and health insurance premiums under Section 80D.
One of the most important deductions that people lose under the new system is the home loan interest deduction. In the old tax regime, people could claim up to Rs. 2 lakh a year on interest paid for a home loan on a self-occupied house under Section 24(b). The principal amount you repay also qualifies for a deduction under Section 80C, along with other investments like PPF and ELSS. Because of these combined benefits, the old regime has been more appealing to home loan borrowers.
Not always. Just because you’re repaying a home loan doesn’t mean the old regime is better. It only works in your favour if the total deductions you’re eligible for are high enough compared to your income. For example, if you’re paying Rs. 3 lakh as home loan interest each year, you can only claim up to Rs. 2 lakh under the old system.
If you’re not using the full Rs. 1.5 lakh limit under Section 80C say you haven’t invested in PPF, ELSS, or bought insurance, the old regime’s benefits are reduced.
However, if you also claim deductions for things like HRA or NPS, the old system might still work better.
“Breakeven point” means a point at which your total deductions make the tax liability in both the new and the old regimes equal. However, as amount of your deductions increase, the old regime is more beneficial than the new one.
Breakeven for Financial Year 2024-25
Breakeven for Financial Year 2025-26
Yes, in some cases. Many people don’t realise that even under the new tax regime, they may be able to claim interest paid on a home loan, but only if the property is rented out. If it’s a self-occupied house, no interest or principal deductions are allowed.
For example, Mr Gupta earns Rs. 1 lakh per year as rent but pays Rs. 5 lakh in loan interest. He shows a property loss of Rs. 4 lakh. However, under the new regime, he can only claim Rs. 1 lakh, the amount he earned in rent as a deduction. The remaining Rs. 4 lakh can’t be claimed now, but can be added to the cost of the house when selling it. This helps reduce the capital gains tax later.
If his interest payment was only Rs. 50,000, the remaining Rs. 50,000 from the rent would be added to his taxable income.
It’s also important to remember that the new regime does not allow any deduction for principal repayment under Section 80C; only the old regime does.
So, should you pick a tax regime only because you have a home loan? Not really.
The better choice depends on your total income and how many deductions you can claim.
If you have several tax-saving investments or deductions, the old tax regime may save you more money. But if you have fewer deductions or want a simpler process, the new tax regime could be a better fit.
In case of any Doubt regarding Membership you can mail us at [email protected]
Join Studycafe's WhatsApp Group or Telegram Channel for Latest Updates on Government Job, Sarkari Naukri, Private Jobs, Income Tax, GST, Companies Act, Judgements and CA, CS, ICWA, and MUCH MORE!"
