Home Loan Exemption Under New Tax Regime – AY 2026-27 Latest Updates

The home loan interest deduction question is one of the most consequential differences between India's two tax regimes — and one of the biggest reasons borrowers still choose the old regime despite its higher headline rates. Understanding exactly what survives in the new regime, and what strategies remain available, helps you make an informed choice.

This page covers:

• Home loan interest deduction — self-occupied property under the new regime
• Home loan interest deduction — let-out property under the new regime
• Section 80EEA — the additional Rs. 1.5 lakh deduction for first-time buyers
• Old vs. new regime comparison tables
• The Rs. 12 lakh tax-free income advantage in the new regime
• How to still benefit from home loan interest under the new regime
• Income tax benefits under the old regime in detail
• Which regime should you choose as a home loan borrower

The topic of home loan interest deduction has gained renewed attention following Union Budget 2026 discussions. Under current rules for FY 2025-26 (AY 2026-27), homeowners cannot claim deductions for interest paid on a housing loan for a self-occupied property under the new regime — a benefit that was previously available under Section 24(b), allowing deduction of up to Rs. 2 lakh. Similarly, deductions on loan principal repayment under Section 80C are also not available when the New Tax Regime is chosen.

However, certain limited benefits continue for rented or let-out properties, with specific restrictions on loss set-off against other income sources.

• Interest deduction (Section 24b): Not allowed. Taxpayers cannot claim the usual deduction of up to Rs. 2 lakh on interest paid if the property is self-occupied under the New Tax Regime.
• Principal repayment (Section 80C): Not allowed. The benefit for principal repayment, previously allowing deductions of up to Rs. 1.5 lakh, is not available.

• Interest deduction: Available in a limited form. Taxpayers can deduct actual interest paid from rental income received.
• Restriction on losses: If interest exceeds rental income, creating a loss, that loss cannot be adjusted against other income sources such as salary — this loss set-off is capped.

• Standard deduction: A 30% standard deduction on net rental income is still allowed for repair and maintenance expenses.

  Property type	Interest deduction (new regime)	Set-off against other income
  Self-occupied	Not allowed	Not applicable
  Let-out (rented)	Full interest allowed	No (only against house property income)

Section 80EEA offers an extra tax deduction of up to Rs. 1.5 lakh on interest paid for an affordable residential property (stamp duty value not exceeding Rs. 45 lakh). This is over and above the Rs. 2 lakh standard deduction under Section 24(b) — combined, an eligible taxpayer can claim interest deductions of up to Rs. 3.5 lakh in a financial year, but only under the old regime.

Conditions: Loan from a recognised bank or HFC; buyer must be a first-time homeowner; not claiming Section 80EE for the same loan; property must fall within defined carpet area limits.

Metropolitan cities under 80EEA: Bangalore, Chennai, Delhi, Mumbai, Kolkata, Hyderabad, Faridabad, Ghaziabad, Noida, Greater Noida, and Gurugram.

Standard deduction and 80C

Interest exemption 24(b) and 80EE/EEA

A major advantage of the new regime is tax-free income up to Rs. 12 lakh when combined with the standard deduction of Rs. 75,000. In the old regime, even with all deductions, only up to Rs. 10 lakh can typically be made tax-free. This Rs. 2 lakh difference makes the new regime worth considering for many, including home loan borrowers — though the calculation differs meaningfully for those with substantial interest payments.

The home loan exemption strategy differs based on property status:

Worked example: Home loan interest paid = Rs. 3,00,000; Annual rental income = Rs. 1,00,000; Net loss (from house property) = Rs. 2,00,000. Only the loss up to Rs. 2 lakh is adjusted against other income in a year — the cap applies regardless of your actual calculated loss.

• Principal amount: The principal component qualifies for deduction under Section 80C, applicable to self-occupied property with a maximum limit of Rs. 1.5 lakh (including stamp duty and registration charges for recent buyers).
• Interest rate: Section 24 allows deduction on interest paid up to Rs. 2 lakh per financial year — this applies even to a second home that is vacant or used by family members, with the combined deduction across multiple properties capped at Rs. 2 lakh.
• Affordable housing bonus: An additional Rs. 1.5 lakh deduction is available under Section 80EEA if the loan is from an approved financial institution, property value does not exceed Rs. 45 lakh, and you do not own any other residential property when the loan is approved.

Your decision should consider: total income level, current EMI repayments, other deductions you qualify for, and long-term financial goals. For most home loan borrowers with significant interest payments, the old regime typically offers greater advantages given the meaningful deductions available.

Check eligibility for a Bajaj Finance Home Loan to benefit from competitive interest rates and favourable terms while making an informed regime decision. Bajaj Finance offers home loans from 7.25% p.a.* with amounts up to Rs. 15 Crore* and tenures up to 32 years.

Understanding exactly what survives in the new regime — and what strategies remain available for let-out properties — helps you make an informed choice between the two tax regimes as a home loan borrower.