India currently has two ways to pay income tax: the new regime (lower tax rates, but very few deductions allowed) and the old regime (higher rates on paper, but you can subtract a lot of things — including your home loan — before tax is even calculated). Most salaried people default into the new regime automatically. If you have a home loan, that default isn't always the cheaper option, and it's worth checking.
What a home loan actually saves you in the old regime
Two deductions matter most:
- Section 24 lets you subtract up to ₹2,00,000 of the interest you paid on your home loan this year, before your tax is worked out — but only for a home you live in yourself (a self-occupied property).
- Section 80C lets you subtract up to ₹1,50,000 of the principal you repaid, shared with other 80C investments you might already have (like PF or ELSS).
In the new regime, neither of these applies if you live in the home yourself — the trade-off is you get lower tax rates instead, with almost nothing to subtract.
A worked example
Take someone earning ₹15L a year, who paid ₹3.5L in home loan interest and ₹1.5L in principal this year, and is a first-time buyer living in the home. Here's what they'd owe under each regime:
The lighter portion of each bar is tax the home loan deductions let this person avoid — visible only in the old regime, since the new regime doesn't offer it for a self-occupied home. In this example, the new regime comes out ₹9.1K cheaper.
Why this isn't a universal answer
The right regime depends entirely on your own numbers — your income, how much interest you're actually paying this year (which, as the previous guide explains, shrinks every year on the same loan), and whether you have other 80C investments already using up that deduction. A high earner with a small, nearly-paid-off loan will get a very different answer than someone early into a large loan. This example shows the mechanism, not a rule you can apply to your own situation without checking your own figures.