Under the new income tax regime, taxpayers face different treatment for home loan interest deductions based on property usage. According to reports from New Delhi, the regime introduces distinct rules for self-occupied versus rental properties, creating clear distinctions in available deductions. However, the old tax regime remains highly popular among home loan borrowers because it allows aggressive tax reduction through both principal and interest components of EMI payments. Sections 80EE and 80EEA provide additional tax relief on interest payments, but their benefits are restricted to taxpayers opting for the old tax regime. These provisions are designed to support first-time homebuyers within specified eligibility conditions and property value limits.
Under the old tax regime, homeowners can claim a deduction of up to ₹2 lakh per financial year on interest paid towards a home loan for a self-occupied property. As reported by NDTV Profit, this deduction is subject to the completion of construction or purchase within the prescribed five-year period. Additionally, under Section 80C of the Income Tax Act, homeowners can claim tax relief of up to ₹1.5 lakh annually on the principal component of their housing loan repayments, though this falls within the overall ₹1.5 lakh Section 80C ceiling that also covers PPF, EPF, ELSS funds, life insurance premiums and NSCs. For the higher ₹2 lakh deduction ceiling to apply, the property must be acquired or constructed within five years from the end of the tax year in which the loan was taken.
For let-out properties, taxpayers can claim deductions on interest paid on a let-out property under both regimes. According to reports from New Delhi, such deductions can be fully claimed against the property's rental income under the old regime. Under the new tax regime, landlords may still be eligible to account for interest expenses against income from house property, though many home loan benefits are unavailable under this structure. For the old regime, there is no ceiling on the amount of interest that may be deducted from rental income, although the set-off of house property losses against other income streams cannot exceed ₹2 lakh annually. Under Section 22(1)(c), pre-construction interest cannot be deducted in the year it is paid but is accumulated and allowed as five equal annual instalments starting from the tax year of construction completion.
The new tax regime comes with lower tax rates but significantly fewer deductions. As reported by NDTV Profit, taxpayers cannot generally claim tax benefits on home loan principal repayments under Section 80C, nor can they avail themselves of the interest deduction available under Section 24(b) for self-occupied homes. Under Section 202(1) of the new tax regime, Section 22(1)(b) deduction is specifically excluded for self-occupied properties, meaning home loan interest on self-occupied properties gives no tax benefit. However, let-out properties continue to allow full interest deduction with no ceiling restrictions. Sections 80EE and 80EEA are not available under the new tax regime, making it important to understand how regime selection impacts overall tax savings for taxpayers with outstanding home loans.
For existing home loan borrowers, balance transfers to lenders offering lower interest rates can provide significant long-term savings. According to Mint, even a small rate reduction can translate into substantial savings over time, particularly when outstanding loan amounts and remaining tenure are substantial. On an ₹80 lakh home loan with 30-year tenure, a rate reduction from 9.2% to 8.6% can lower EMI by nearly ₹3,000 per month and potentially save ₹11-12 lakh over the loan tenure. However, borrowers must carefully evaluate benefits against processing fees, legal charges, and remaining loan amount before proceeding. The transfer process involves tracking interest rate movements, evaluating net savings after considering all expenses, and ensuring the tenure remains long enough to maximize benefits. Maintaining a healthy credit profile with scores above 750 improves chances of securing lower rates, while regular EMI reviews help avoid paying higher rates during declining interest cycles.
