A salaried buyer in Bengaluru budgeted his home purchase assuming the familiar tax savings on his loan would soften the EMI, only to discover at filing time that the tax regime he was on did not allow them. He had not done anything wrong, but he had planned around a benefit that no longer applied to his situation. Home loan tax benefits are real and can be valuable, but which ones you actually get now depends on a choice many buyers do not realise they are making: old tax regime or new.

The short answer. A home loan can give you two main tax deductions under the old tax regime: interest of up to 2,00,000 rupees a year on a self-occupied home under Section 24(b), and principal repayment of up to 1,50,000 rupees a year under Section 80C, though the 80C limit is shared with other investments. The catch is the regime: the new tax regime, which is now the default, does not allow these deductions for a self-occupied home, with a narrow exception for interest on a let-out property. The trade off is that a buyer must decide between the two regimes with these benefits in mind, and should never buy a home for the tax break alone.

What tax benefits does a home loan offer?

A home loan offers two principal tax benefits under the old regime: a deduction for the interest you pay and a deduction for the principal you repay. The interest deduction comes under Section 24(b) of the Income Tax Act and applies to the interest portion of your EMIs, while the principal deduction comes under Section 80C and applies to the principal portion. Together, under the old regime, they let a homeowner reduce taxable income meaningfully in a year. These are the benefits most buyers have heard of, and for many years they were a standard part of the case for buying with a loan. The important update is that their availability now hinges on which tax regime you are under, so understanding the two deductions has to go hand in hand with understanding the regime choice, which we come to below. There are also additional interest deductions that have existed at various times for first time or affordable housing buyers, but these have typically come with their own conditions and time windows, so a buyer should not assume they apply without checking the current position. The safest way to think about it is that a home loan can reduce your tax under the old regime through interest and principal, and everything beyond that basic pair should be verified rather than assumed.

How much interest can you deduct under Section 24(b)?

Under Section 24(b), for a self-occupied home, you can deduct home loan interest of up to 2,00,000 rupees a year under the old tax regime. This deduction applies to the interest component of your EMIs, which is largest in the early years of a loan, so the benefit is most valuable when the loan is young. The 2,00,000 rupee ceiling is for a self-occupied property, and different treatment applies to a let-out property, where the interest deduction works differently. Because the interest you pay usually exceeds this ceiling on a large loan in the early years, many borrowers claim the full amount. For a buyer planning a purchase under the old regime, this is typically the more substantial of the two home loan deductions, and it is worth confirming the current limit and conditions on the official income tax portal before relying on it.

How much principal can you deduct under Section 80C?

Under Section 80C, you can deduct the principal you repay on a home loan up to 1,50,000 rupees a year, but this ceiling is shared with other eligible investments. The 80C limit is not a home loan specific allowance: it is a combined cap that also covers things like provident fund contributions, life insurance premiums, and certain other savings, so your home loan principal competes for the same 1,50,000 rupee space. If you already exhaust 80C through other investments, the principal repayment adds no further deduction, and if you do not, it can help fill the limit. This is why the 80C benefit is often smaller in practice than the headline suggests. As with the interest deduction, it applies under the old regime, and a buyer should treat it as one claimant on a shared allowance rather than a separate, guaranteed saving. A related point that trips up buyers of under construction homes is that the principal and interest deductions generally begin once the property is completed and possession is taken, and interest paid during the construction period is treated under its own rules rather than being freely deductible year by year. So the timing of when you can start claiming, not just the amount, is something to plan for when you buy a home that is still being built.

Does the new tax regime change home loan tax benefits?

Yes, and this is the point that catches buyers out: the new tax regime, now the default, does not allow the Section 80C and Section 24(b) deductions for a self-occupied home. Under the new regime, the common home loan deductions for a self-occupied property, including 80C principal, 24(b) interest, and the additional interest sections, are not available, which is the trade off for the new regime's lower headline rates and simpler structure. There is a narrow exception: interest on a let-out property can still be claimed under Section 24(b) even in the new regime. For a buyer, this means the tax saving you can expect depends entirely on your regime, and the regime that is best overall for you depends on your whole tax picture, not just the home loan. Do not assume the old benefits apply, and check which regime you are on and what it allows.

Should tax benefits drive your home buying decision?

No. Tax benefits should be a welcome reduction in cost, not the reason you buy a home. A house is a large, long term commitment about where and how you want to live, and the tax treatment of the loan is a secondary factor that can change with policy, as the regime shift shows. Buying a more expensive home, or taking a larger loan than you need, in order to maximise a deduction is usually a poor trade, because the interest you pay to claim the benefit far exceeds the tax you save. The sensible approach is to choose a home and a loan that fit your needs and your budget, and then claim whatever benefits your regime allows as a bonus. Treating the deduction as the driver rather than the dividend is how buyers talk themselves into decisions they later regret.

Home loan tax benefits at a glance

The benefits depend on the section and the regime, so here is how they compare.

The pattern is stark: the familiar home loan deductions live in the old regime, while the new regime offers little for a self-occupied home.

What should a buyer check about home loan tax benefits?

A buyer should confirm which regime suits them and what it allows before counting on any deduction. Work through these checks.

1. Identify whether you are on the old or the new tax regime for the year.
2. Under the old regime, confirm the Section 24(b) interest limit for a self-occupied home.
3. Check how much of your Section 80C limit is already used by other investments.
4. Remember the new regime generally does not allow these deductions for a self-occupied home.
5. Note the let-out property interest exception if you are letting the home out.
6. Compare your total tax under both regimes, including the home loan benefits, before choosing.
7. Confirm the current limits and conditions on the official income tax portal.

Doing this means the tax benefit you plan around is the one you will actually receive, rather than a figure that quietly disappeared with a change of regime.

Frequently asked questions

How much home loan interest is tax deductible?

Under the old tax regime, interest on a self-occupied home is deductible up to 2,00,000 rupees a year under Section 24(b). The deduction applies to the interest part of your EMIs, which is highest early in the loan. A let-out property is treated differently. Confirm the current limit and conditions on the official income tax portal.

Is home loan principal repayment tax deductible?

Under the old regime, principal repayment is deductible under Section 80C up to 1,50,000 rupees a year, but this ceiling is shared with other investments such as provident fund and life insurance. If those already use up your 80C limit, the principal adds no further deduction. The benefit applies under the old regime, not the new one.

Are home loan tax benefits available under the new tax regime?

Generally no for a self-occupied home. The new tax regime, now the default, does not allow the Section 80C principal, Section 24(b) self-occupied interest, or the additional interest deductions. The main exception is interest on a let-out property, which can still be claimed under Section 24(b) even in the new regime.

Should I buy a home for the tax benefits?

No. Tax benefits should be a bonus, not the reason to buy. Taking a larger loan or a costlier home to maximise a deduction usually costs more in interest than it saves in tax. Choose a home and loan that fit your needs and budget, then claim whatever benefits your tax regime allows.

Understand the loan itself with our guide to how your home loan EMI and the repo rate work, and check the project financing side in our note on an APF approved project and home loan. If you are comparing homes, our overview of Amberstone Pride of JP Nagar shows what to weigh. Confirm current limits on the official Income Tax Department portal.

Last updated 2026-07-13. PropNewz Team.