The Budget 2025 brings fresh updates on home loan exemption under the new tax regime. For many taxpayers, housing loans are a major part of financial planning. Understanding how the new regime treats home loan exemptions can help you make better tax choices. The home loan exemption and exemption for housing loan interest rules have changed in significant ways.
This article will explore all aspects of home loan tax benefits in both old and new tax regimes after Budget 2025.
Latest news: Budget 2026 May Increase Home Loan Interest and Key Tax Deduction Limits
India’s income tax system has, for many years, supported taxpayers through various deductions that reduce taxable income. These benefits have traditionally been linked to the old tax regime. However, since the introduction of the new tax regime, the relevance of many deductions under the Income Tax Act, 1961 has reduced. In fact, for the assessment year 2024–25, nearly 72% of taxpayers chose the new tax regime, largely due to its simplified structure and revised tax slabs.
Under the new regime, most popular deductions are not available, but this is partly balanced by lower tax rates across income slabs. For many individuals, this results in a lower overall tax liability despite giving up deductions. This makes it essential for taxpayers to carefully compare both regimes before making a choice, considering their income structure, investments, and long-term financial commitments.
That said, a significant number of taxpayers continue to favour the old tax regime. This is often because of existing investments, home loans, insurance policies, and retirement contributions that still offer meaningful tax savings. However, a major concern is that deduction limits have remained unchanged for years, despite sharp increases in living costs, medical expenses, housing prices, and the overall cost of financial security.
For example, deductions under Section 80C have been capped at Rs. 1.5 lakh since 2014. This limit now feels insufficient given rising education costs, higher insurance premia, and increased home loan principal repayments. Similarly, home loan interest deductions for self-occupied properties are capped at Rs. 2 lakh, even though property prices and EMIs have risen substantially over time.
As Budget 2026 approaches, there is growing expectation that these limits may be revised. Proposals such as increasing the home loan interest deduction to Rs. 3 lakh, enhancing the Section 80C limit, and reviewing other key deductions could offer much-needed relief to middle-class households. Such changes would help restore the original intent of these provisions and better align tax benefits with today’s financial realities.
80EEA deduction for income tax on home loans 2025
Section 80EEA of the Income Tax Act was introduced to make home ownership easier for first-time buyers, especially those looking to purchase affordable homes with the help of a home loan. This provision allows eligible buyers to reduce their tax burden by claiming an additional deduction on the interest paid towards their home loan. It was brought in to support government housing initiatives such as Pradhan Mantri Awas Yojana (PMAY), which aims to encourage more Indians to own a home. Over the years, Section 80EEA has helped many taxpayers make their dream of buying a house more financially manageable by offering meaningful tax relief.
What is Section 80EEA?
Section 80EEA offers an extra tax deduction of up to Rs. 1.5 lakh on the interest paid on a home loan taken for purchasing an affordable residential property. This benefit is over and above the standard deduction available under Section 24(b). When combined, an eligible taxpayer can potentially claim interest deductions of up to Rs. 3.5 lakh in a financial year. This section is specifically meant for individuals buying their first home and does not apply to investors or those who already own residential property.
What are the conditions for claiming the benefit?
To claim deduction under Section 80EEA, certain conditions must be met. The home loan should be taken from a recognised bank or housing finance company. The buyer must be a first-time homeowner and should not own any residential property at the time of loan sanction. The stamp duty value of the house must not exceed Rs. 45 lakh. The taxpayer should also not be claiming benefits under Section 80EE for the same loan. Additionally, the property must fall within the defined limits for carpet area, depending on whether it is located in a metropolitan or non-metropolitan city.
Documents required to claim 80EEA deduction benefit on home loans
To successfully claim this deduction, proper documentation is essential. This includes proof of property ownership, agreement to sell or purchase deed, and a certificate confirming construction or purchase completion. Loan-related documents such as the interest certificate issued by the lender are required, along with personal and financial records as requested. Receipts for municipal taxes paid may also be needed during assessment.
Who can claim for deduction under Section 80EEA Income Tax Act?
Only individual taxpayers who are first-time home buyers are eligible to claim this deduction. The benefit is not available to Hindu Undivided Families (HUFs) or those who already own a residential house, whether bought earlier, inherited, or jointly owned.
Can a person claim deductions for home loans taken for multiple houses?
Section 80EEA is strict in this regard. The deduction is allowed only for one residential property. If a person owns or has previously owned any other house, even without a home loan, they cannot claim benefits under this section. This is different from other sections like 80C, where deductions may apply across multiple properties.
Which are the metropolitan cities according to the Section 80EEA Income Tax Act?
For the purpose of this section, metropolitan cities include Bangalore, Chennai, Delhi, Mumbai, Kolkata, Hyderabad, Faridabad, Ghaziabad, Noida, Greater Noida, and Gurugram. Properties in these cities have specific carpet area limits to qualify as affordable housing.
How much is the amount deduction under Section 80EEA Income Tax Act?
Under Section 80EEA, taxpayers can claim a maximum deduction of Rs. 1.5 lakh on home loan interest. This is in addition to the Rs. 2 lakh limit under Section 24(b). If all eligibility criteria are fulfilled, the total interest deduction available can go up to Rs. 3.5 lakh in a financial year.
Old or new regime, which has more benefits?
The financial year 2025-26 raises a common question – should you stay with the old tax regime or switch to the new one? Each has different advantages for home loan borrowers. The old regime offers more deductions but has higher tax rates. The new regime has lower rates but fewer exemptions. Your personal situation, especially your home loan status, matters greatly in this decision.
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If there is no deduction in the new regime, then how to benefit?
Many believe the new tax regime removes all deductions. This is not fully true. While most deductions are gone, there are still ways to benefit. The new regime has lower tax rates that might offset some lost deductions. For home loan holders, understanding these nuances is vital. Some indirect benefits exist even without direct exemptions. The home loan exemption strategy differs in the new system but can still be advantageous in certain cases.
Income tax free up to Rs. 12 lakh
A major advantage of the new tax regime is tax-free income up to Rs. 12 lakh when combined with the standard deduction of Rs. 75,000. This makes it attractive for many taxpayers. In the old regime, even with all deductions, only up to Rs. 10 lakh can be made tax-free. This Rs. 2 lakh difference makes the new regime worth considering for many, including home loan borrowers looking at home loan exemption benefits.
Deduction on home loan interest too? How?
Can you get exemption for housing loan interest in the new regime? Yes, but not directly. The home loan exemption works differently now. Unlike the old regime where Section 24(b) offers direct deduction on self-occupied property interest, the new regime follows a special rule. Understanding this rule can help maximise your tax benefits even under the new system.
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) |
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Main exemptions in old vs new regime
Before making your choice, understand which exemptions remain in each regime:
Standard deduction and 80C
Particular |
Old regime |
New regime |
Standard Deduction |
Rs. 50,000 (Salary) |
Rs. 75,000 (Salary) |
Section 80C (Principal Repayment) |
Available up to Rs. 1.5 lakh |
Not available |
The higher standard deduction in the new regime partially compensates for some lost benefits. However, the loss of 80C deduction affects home loan principal repayment benefits significantly.
Interest exemption 24(b) and 80EE/EEA
Particular |
Old regime |
New regime |
Section 24(b) (Interest) |
Exemption up to Rs. 2 lakh (Self-Occupied Property) |
Not available (with one exception) |
Section 80EE/EEA (Extra Interest) |
Separate exemption possible |
Discontinued or merged |
These differences highlight how home loan exemption benefits vary between regimes. The exception in the new regime is crucial to understand.
How to benefit from home loan interest?
The truth about home loan exemption in the new tax regime: There is no direct deduction under Section 24(b) for self-occupied property. However, if your property is rented out, you can still benefit.
The home loan exemption strategy differs based on property status:
Property status |
New tax regime benefit |
Self-occupied house |
No tax exemption on interest |
House on rent (Let-out) |
Loss of rental income can be set-off against other income |
If you have let out your home with a home loan, you can adjust the net loss due to interest while calculating "income from house property." This allows for an indirect home loan exemption benefit.
For 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 loss up to Rs. 2 lakh will be adjusted against other income in a year, even if your actual loss (due to interest) is more. This limitation applies to the home loan exemption through the loss set-off route.
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Income tax benefits on home loans in the old income tax regime
The old regime provides more straightforward benefits for home loan borrowers.
Tax benefit on principal amount of home loan
Under the old tax system, the principal component of your home loan EMI qualifies for deduction under Section 80C. This deduction applies to self-occupied property with a maximum limit of Rs. 1.5 lakh. If you own multiple properties with loans, you can claim exemptions on all, but the total cannot exceed Rs. 1.5 lakh. Additional expenses like stamp duty and registration charges also qualify under this section, making it valuable for recent home buyers.
Tax benefit on home loan interest rate
Section 24 of the Income Tax Act allows deduction on interest paid for self-occupied property up to Rs. 2 lakh per financial year. This home loan exemption applies even to a second home that is vacant or used by family members. Remember that the combined deduction for multiple properties cannot exceed Rs. 2 lakh.
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More deduction on home loan tax interest rate for affordable housing
For affordable housing purchases, additional benefits apply beyond the standard Rs. 2 lakh interest deduction. You can claim an extra deduction of Rs. 1.5 lakh per year if:
The loan is from an approved financial institution
The property value does not exceed Rs. 45 lakh
You do not own any other residential property when the loan is approved
Income tax benefits on home loans in the new income tax regime
In the new regime, exemptions on interest paid for self-occupied property are no longer available under Section 24. Additionally, Section 80C deductions are not allowed, eliminating exemptions on the principal amount. However, you can still claim exemption on interest paid for a home loan on a rental property through the loss set-off mechanism described earlier.
Should you opt for the old or new regime?
Your decision should consider multiple factors:
Your total income level
Current EMI repayments
Other deductions you qualify for
Long-term financial goals
For most home loan borrowers, especially those with significant interest payments, the old regime typically offers greater advantages. It provides more flexibility and options for deductions related to home loans. Before deciding, analyse your specific numbers carefully and consider seeking advice from a financial expert. Check your eligibility for a Bajaj Finserv Home Loan to make an informed decision. You may already be eligible, find out by entering your mobile number and OTP.
Conclusion
The Budget 2025 has brought significant changes to home loan exemption rules under the new tax regime. While direct deductions on interest for self-occupied properties are not available, indirect benefits exist for rented properties. The old regime continues to offer more straightforward home loan tax benefits through Sections 80C and 24(b).
Whether you opt for the old or new tax regime, understanding the home loan exemption rules is crucial for maximising your tax benefits. Consider your personal financial situation carefully before making this important decision. Check your loan offers from Bajaj Finserv today to start your journey toward homeownership with optimal tax planning. You may already be eligible, find out by entering your mobile number and OTP.
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Helpful resources and tips for home loan borrowers
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