The introduction of the new tax regime in 2020 allowed taxpayers to pay lower taxes by letting go of common exemptions and deductions. While the new system offers a simplified structure, many taxpayers, especially home loan holders, still find value in the old tax regime. The old system allows individuals to claim deductions on home loan interest and principal repayment — something the new regime doesn’t offer.
But in 2025, is sticking with the old tax regime still worth it just because of home loan benefits? Let’s break it down in simple terms.
What Are the Key Features of the Old Tax Regime?
The old tax regime works on a slab-wise taxation system. The main benefit is the availability of multiple deductions under various sections of the Income Tax Act. Some of the key deductions are:
- Section 80C – Deduction of up to Rs. 1.5 lakh for investments like PF, PPF, LIC premium, and home loan principal repayment.
- Section 24(b) – Deduction of up to Rs. 2 lakh on annual home loan interest.
- Section 80EEA – An additional deduction of up to Rs. 1.5 lakh on home loan interest for first-time buyers (subject to conditions).
- Section 80D, 80G, and others – Deductions for health insurance premiums, donations, etc.
Under the old regime, these deductions reduce your taxable income significantly, which is especially useful if you have a home loan.
What’s New in the New Tax Regime?
The new regime has lower tax rates across income slabs but no exemptions or deductions (except NPS and employer’s PF contribution under limited cases). Here’s the current slab (FY 2024-25):
Income Slab Tax Rate
Up to Rs. 3 lakh Nil
Rs. 3–6 lakh 5%
Rs. 6–9 lakh 10%
Rs. 9–12 lakh 15%
Rs. 12–15 lakh 20%
Above Rs. 15 lakh, 30%
While the structure looks tempting with lower rates, it doesn’t allow deductions under Section 80C or Section 24(b), which home loan borrowers heavily depend on.
Let’s Understand With a Real Example
Let’s take the case of Ankit, a 32-year-old salaried employee earning Rs. 12 lakh annually. He is repaying a home loan with the following components:
- Principal paid in FY: Rs. 1,50,000
- Interest paid in FY: Rs. 2,00,000
- Additional deductions (health insurance, PF, etc.): Rs. 50,000
Under the Old Tax Regime:
- Standard deduction: Rs. 50,000
- Section 80C (Principal repayment + LIC, PPF): Rs. 1,50,000
- Section 24(b) (Interest): Rs. 2,00,000
- Section 80D and others: Rs. 50,000
- Total deductions: Rs. 4.5 lakh
Taxable income = Rs. 12,00,000 – Rs. 4,50,000 = Rs. 7,50,000
Based on current slabs, total tax (including cess) = approx. Rs. 65,000
Under New Tax Regime:
No deductions except the standard rebate for income up to Rs. 7 lakh. Since Ankit earns Rs. 12 lakh, he is taxed as per slab.
Tax = Rs. 90,000 + cess = approx. Rs. 93,600
Conclusion: Due to home loan deductions, Ankit saves almost Rs. 28,600 in taxes under the old regime.
When Does the Old Regime Make Sense?
Home loan benefits play a massive role in favour of the old tax system. Here’s when you should prefer the old regime:
- You are paying a home loan EMI: Both principal and interest components can help lower your tax burden.
- You invest in tax-saving instruments: If you already put money in PPF, ELSS, PF, or LIC, you can claim Rs. 1.5 lakh under Section 80C.
- You have a family with health insurance: Premiums paid for self, spouse, kids, and parents also qualify for deductions under 80D.
- You’re a first-time homebuyer: You may get an extra Rs. 1.5 lakh deduction under Section 80EEA.
In all these cases, your actual taxable income can fall under a lower slab, offering more savings than the new regime’s reduced tax rate.
Who Should Prefer the New Tax Regime?
Despite the clear benefits of home loan deductions, the new tax regime may suit some individuals. It is beneficial for those who:
- Don’t have a home loan
- Don’t make investments under Section 80C
- Prefer hassle-free filing without proof of deductions
- Have higher disposable income and prefer liquidity
You may pay less under the new tax regime if you’re not taking any significant deductions.
What Happens to Home Loan Deduction in New Regime?
This is important — under the new tax system, you cannot claim:
- Rs. 2 lakh deduction under Section 24(b)
- Rs. 1.5 lacks principal deduction under Section 80C
- Additional Rs. 1.5 lakh under Section 80EEA (for eligible homebuyers)
If you switch to the new regime, you lose the entire tax benefit linked to your home loan.
So, if your yearly interest is Rs. 2 lakh, this translates to a tax saving of around Rs. 60,000 (for someone in the 30% tax slab) — which will be lost if you opt for the new regime.
Why Do Most Home Loan Borrowers Stick to the Old Tax System?
According to data from income tax filings over the last two years, salaried taxpayers with home loans prefer the old regime because the combined deductions reduce their net taxable income more efficiently.
In 2023, the Central Board of Direct Taxes (CBDT) [1] mentioned that while more than 50% of taxpayers experimented with the new regime, only 25–30% entirely shifted — especially those with housing loans.
How to Decide Between the Two Regimes in 2025?
Here’s a quick way to make a wise decision:
- List your annual salary
- Calculate all eligible deductions under 80C, 24(b), 80D, etc.
- Subtract deductions from your gross income to get your taxable income under the old regime
- Use the slab rates to calculate taxes under both systems
- Compare the final tax payable and choose the regime where you pay less
You can use official income tax calculators provided by the Income Tax Department or trusted financial websites like ClearTax [2], BankBazaar [3], and Groww [4].
Future of Home Loan Benefits: Will It Continue?
Though the government has been promoting the new regime by making it default from FY 2023-24, they haven’t obliterated the old regime. Home loan borrowers can still use tax savings under Sections 24 and 80C.
However, financial experts believe that if you are taking a new home loan in 2025 or already repaying one, the old tax regime still gives better value in tax savings. It may involve more paperwork, but the savings can be worth lakhs over the loan period.
Key Takeaway
If you’re a salaried individual with a home loan, the old tax regime remains your best friend in 2025 — not just for tax saving but also for disciplined investment planning. While the new regime is easier and cleaner, the math still favours the old system if you claim deductions wisely.
Sources:
[1] CBDT
[2] ClearTax
[3] BankBazaar
[4] Groww
Disclaimer: This article is for informational purposes only. Please consult a qualified tax advisor for personalised financial advice.
