Lower rates but no allowance under new regime The new tax regime, under Section 115BAC, gives the benefit of concessional slab rates but withdraws most of the allowances and deductions. These include popular ones such as Section 80C (for principal repayment) and Section 24(b) (for interest on home loan). Once you opt for the new regime, you give up these advantages—potentially reducing your overall tax benefit, especially if you are paying a home loan.
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Section 24(b) deduction no longer available In the earlier regime, the loan borrowers were entitled to take a maximum of ₹2 lakh annually as an interest paid on a self-occupied home loan under the head of deduction. That is no longer the case if you choose the new regime. This means that a significant tax relief—most favourable for first-time borrowers with high interest outgo—is lost. If you are living in your own house and not claiming HRA, this loss becomes more pronounced.
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Section 80C deduction on principal also erased Repayment of the principal component of a housing loan can be deducted up to ₹1.5 lakh under Section 80C in the old tax regime. But since all 80C deductions—including for EPF, LIC, fees for study and home loan principal—are lost in the new regime, your total deduction may plummet. Thus, comparing benefits before switching regimes is crucial.
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Loss on set-off of house property is not allowed Previously, if you had a second house (whether rented or vacant), you could offset losses of house property income against your wages or other incomes and deduct interest. Now, this relief is not permitted, and any such loss can be carried forward for only eight assessment years. This curbs tax planning possibilities for people with large numbers of houses and big loan EMIs.
Benefit tenants of HRA might even prefer the new regime If you’re a salaried tenant claiming HRA exemption, but your home loan tax benefits are low (either due to small loan amount or nearing end of tenure), the new regime might still be attractive. With reduced slab rates and less documentation hassle, it could work better for those not making full use of 80C and 24(b). But the trade-off must be evaluated using a tax comparison calculator before filing your return.
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Choose the regime based on your assumptions and earnings Finally, the decision between old and new regimes relies on your overall deductions, particularly home loan, Section 80C, 80D, and HRA. Borrowers with large housing loans and higher salaries might find more benefit in remaining with the old regime. Conversely, if a larger portion of your tax savings are small or nil, the lower slab rates of the new regime could prove more beneficial. Prudent calculation is needed before switching over.
