Claiming Home Loan in New Regime? What You Lose & Keep
- Rajesh Kumar Kar
- Sep 16
- 8 min read
The choice between the old and new tax regimes has become increasingly important for salaried individuals and homeowners, especially with changes introduced in the latest Union Budget 2025. While the new tax regime offers lower tax rates and simplified calculations, it comes at the cost of losing several key deductions and exemptions that are available under the old regime. Understanding what you may lose is crucial for effective tax planning, particularly if you have investments, home loans, or other deductions that reduce taxable income. Evaluating the impact of these changes helps taxpayers make informed decisions and optimise their tax liabilities without missing out on potential benefits.
Table of contents
What You Lose in the New Tax Regime
The new tax regime, introduced to simplify income tax filing and offer lower tax rates, comes with a trade-off: taxpayers who opt for it must forgo many deductions and exemptions that were available under the old regime. While the lower slab rates may initially appear attractive, it is crucial to understand what you are giving up.
One of the most notable exclusions is the standard deduction, which salaried individuals previously enjoyed to reduce taxable income. Additionally, House Rent Allowance (HRA) exemptions are no longer available, meaning individuals paying rent cannot claim tax relief for a portion of their rent.
Moreover, key deductions under Section 80C, such as investments in Employee Provident Fund (EPF), Public Provident Fund (PPF), life insurance premiums, and National Savings Certificates (NSC), are no longer deductible under the new regime. Similarly, Section 80D deductions for health insurance premiums, Section 24(b) for home loan interest, and other commonly used exemptions are not applicable.
For taxpayers with significant eligible deductions, this could result in a higher overall tax liability despite the lower tax slabs. Essentially, the new regime favors individuals with minimal deductions, while those with substantial investments and expenses may benefit more under the old regime. Choosing between the two regimes requires careful calculation, balancing the simplicity of lower tax rates against the tax-saving potential of available deductions.
No Deduction on Principal Repayment (Section 80C)
Under the old tax regime, taxpayers could claim deductions of up to ₹1.5 lakh per financial year under Section 80C. This deduction applies to eligible investments and expenses, including principal repayment of home loans, contributions to Public Provident Fund (PPF), Equity-Linked Savings Scheme (ELSS), National Savings Certificates (NSC), and life insurance premiums. By claiming these deductions, a portion of your taxable income is reduced, directly lowering the tax liability.
In contrast, under the new tax regime, all such deductions, including Section 80C benefits, are completely eliminated. This means that any money spent on repaying the principal of a home loan or on other 80C eligible investments will not reduce your taxable income. For example, if a taxpayer earns ₹12 lakh annually and repays ₹1.5 lakh as home loan principal, under the old regime, the taxable income reduces to ₹10.5 lakh. Under the new regime, the taxable income remains ₹12 lakh, resulting in higher taxes.
This change makes the new regime less favorable for taxpayers with significant investments in 80C instruments or substantial home loan principal repayments. It is essential to carefully evaluate whether the old regime still provides better tax savings based on your investments and liabilities.
No Deduction on Home Loan Interest for Self-Occupied Property (Section 24(b))
For homeowners under the old tax regime, the interest paid on home loans for a self-occupied property is eligible for a deduction of up to ₹2 lakh per year under Section 24(b). This deduction significantly reduces the taxable income for individuals with home loans, particularly in the initial years when interest payments form the bulk of the EMI.
Under the new tax regime, this deduction is completely removed. Consequently, the interest component of your home loan EMI can no longer be used to lower taxable income. For instance, if a taxpayer pays ₹1.8 lakh as interest on a self-occupied home loan in a year, under the old regime, this amount would reduce taxable income by ₹1.8 lakh. Under the new regime, this deduction is unavailable, and the full ₹1.8 lakh is added to taxable income, increasing the overall tax liability.
This removal of benefits under the new tax regime can have a substantial financial impact for homeowners, especially for those who have large home loans. It also affects long-term financial planning, as the tax savings available under the old regime on home loan interest played a crucial role in managing overall housing costs.
Loss of Other Deductions and Exemptions
The new tax regime in India, introduced to simplify income tax calculations, offers lower tax rates but at the cost of many popular deductions and exemptions that taxpayers could claim under the old regime. Understanding these losses is crucial before deciding whether to opt for the new regime, as it directly impacts taxable income and overall tax liability.
Some of the key deductions and exemptions removed under the new regime include:
Standard Deduction for Salaried Individuals: Previously, salaried employees could claim a standard deduction of ₹50,000 from their taxable income. This reduction helped lower tax liability without any specific investment or expense documentation. Under the new regime, this deduction is not available, increasing the taxable portion of salary.
House Rent Allowance (HRA) Exemption: HRA is one of the most commonly claimed exemptions for salaried individuals living in rented accommodations. Under the old regime, eligible taxpayers could deduct a portion of their rent paid from taxable income. The new regime eliminates this, raising the effective tax burden for those paying rent.
Leave Travel Concession (LTC): Exemptions for travel expenses incurred for domestic trips under LTC, previously available once in a block of four years, are no longer allowed in the new regime.
Deductions under Section 80D and 80E: Tax benefits for health insurance premiums (Section 80D) and interest paid on education loans (Section 80E) are removed, which directly affects families with health coverage and students or parents paying education loan interest.
Deductions for Donations under Section 80G: Charitable donations eligible for deduction under Section 80G are not allowed in the new regime, reducing incentives for voluntary contributions to approved organizations.
The cumulative effect of losing these deductions can be significant. Taxpayers who previously reduced their taxable income through HRA, LTC, health insurance, education loans, and charitable donations may face a higher overall tax liability under the new regime. It is essential to carefully compare both regimes to assess which option minimizes tax outgo, considering personal expenses, investments, and income structure.
Latest Union Budget 2025 Updates on Home Loan Tax Benefits
The Union Budget 2025 has introduced certain clarifications and minor relaxations for taxpayers with home loans, although the fundamental principles regarding deductions under the new tax regime remain largely unchanged. Under the new tax regime, taxpayers cannot claim deductions for either the principal repayment of a home loan under Section 80C or the interest paid on loans for self-occupied properties under Section 24(b). This means that individuals who are planning to take a home loan and were hoping to avail tax benefits under the new regime will not have such deductions available.
For many taxpayers, this makes evaluating the old tax regime more relevant, especially for those looking to maximize tax savings through home loan benefits. Under the old regime, principal repayments are eligible for a deduction of up to ₹1.5 lakh under Section 80C, and interest payments on self-occupied properties can reduce taxable income by up to ₹2 lakh per year.
The Budget also provided clarifications on aspects like pre-construction interest and the treatment of second homes, helping borrowers plan repayments more strategically. Homebuyers are encouraged to consider financial planning and regime selection carefully before deciding on their tax-saving strategies. Using tools and platforms such as TaxBuddy can help ensure accurate calculations of deductions and assist in choosing the most beneficial tax regime based on individual financial circumstances.
In essence, while the 2025 budget did not bring groundbreaking changes, staying informed about these minor relaxations can help homeowners optimize their tax benefits and manage home loan repayments efficiently.
Conclusion
While the new tax regime offers lower tax rates and simplified filing, it eliminates many deductions and exemptions available under the old regime, particularly for home loan repayments and other eligible investments. Homeowners and salaried individuals should carefully analyze their deductions and financial commitments before making the switch. For efficient planning and filing under the regime that best suits your tax situation, platforms like TaxBuddy provide seamless guidance and assistance. For anyone looking for assistance in tax filing, it is highly recommended todownload the TaxBuddy mobile app for a simplified, secure, and hassle-free experience.
FAQs
Q1. Can I switch back to the old regime if I opt for the new one? Yes, individual taxpayers have the flexibility to choose between the old and new tax regimes every financial year while filing their ITR. This means you can opt for the new regime one year and return to the old regime the next year if it offers better tax benefits. The choice depends on your income, deductions, and exemptions available in a given year.
Q2. Are home loan interest deductions allowed in the new tax regime? No, under the new tax regime, deductions for home loan interest under Section 24(b) are not available for self-occupied properties. This means the interest you pay on your home loan will not reduce your taxable income if you choose the new regime. Only under the old regime can you claim these deductions.
Q3. What is the impact of losing Section 80C benefits? Section 80C deductions include popular investments like PPF, ELSS, NSC, and principal repayment of home loans. If you choose the new regime, these deductions are not allowed. Consequently, your taxable income may increase if you rely heavily on these exemptions, making tax planning crucial.
Q4. Can salaried employees still claim standard deduction under the new regime? No, the standard deduction of ₹75,000 for salaried employees is not available in the new tax regime. This deduction is automatically applied under the old regime and helps reduce taxable income, so its removal can affect the overall tax liability for salaried taxpayers.
Q5. Is HRA exempt under the new tax regime? No, House Rent Allowance (HRA) exemption is removed under the new tax regime. Taxpayers opting for the new regime cannot claim HRA deductions even if they live in rented accommodation. Those who benefit significantly from HRA exemptions may need to compare regimes before filing.
Q6. Are health insurance premiums deductible? No, deductions under Section 80D for health insurance premiums paid for yourself, family, or parents are not available in the new tax regime. If health insurance deductions are a major part of your tax-saving strategy, the old regime might be more suitable.
Q7. Are donations to charity eligible for deduction? Donations under Section 80G, which provide deductions for contributions to charitable organizations, cannot be claimed in the new regime. Taxpayers who regularly donate to eligible charities will lose this benefit and need to consider the impact on their overall tax liability.
Q8. How do I decide which regime is better for me? To choose the optimal regime, compare the total eligible deductions and exemptions under the old regime with the lower tax rates offered by the new regime. If your deductions significantly reduce taxable income, the old regime may be better. For those with minimal deductions, the new regime’s lower rates may result in greater tax savings.
Q9. Can I claim education loan interest deduction in the new regime? No, deductions under Section 80E for interest paid on education loans are not available under the new regime. Taxpayers financing higher education for themselves, children, or relatives will not be able to reduce taxable income using these deductions.
Q10. Does the new regime benefit first-time taxpayers with minimal deductions? Yes, first-time taxpayers or individuals with few deductions often benefit from the new regime. The lower tax rates in the new system can result in reduced tax liability compared to the old regime, even without exemptions or deductions.
Q11. Are savings account interest and bank deposits covered under deductions in the new regime? No, under the new regime, Section 80TTA/80TTB deductions for interest earned on savings accounts and certain bank deposits are not available. This could slightly increase taxable income for taxpayers who rely on interest income deductions.
Q12. Can I change my regime after filing the ITR? No, once the ITR is filed for a particular financial year, the choice of old or new regime is final. Taxpayers cannot switch regimes retrospectively after filing. It is important to carefully evaluate your deductions, exemptions, and income before making the selection.
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