New Tax Regime is changing how Indians think about home loans: Here's why 

ITR 2026: India's new income tax regime is gradually changing the way homebuyers evaluate home loans, with affordability and repayment capacity taking centre stage over tax-saving benefits that traditionally influenced borrowing decisions. Industry experts say the shift is prompting borrowers to focus more on sustainable EMIs than on maximising tax deductions, resulting in more prudent borrowing patterns.

From tax planning to cash flow

For years, home loan decisions in India were closely linked to tax planning. Borrowers often structured their loan amounts and repayment tenures around the deductions available under Section 24(b) for home loan interest and Section 80C for principal repayment.

According to Bikash Kumar Mishra, Chief Financial Officer of Easy Home Finance Limited, many middle-class borrowers viewed their monthly equated monthly instalments (EMIs) through the lens of post-tax savings rather than actual affordability.

However, with an increasing number of taxpayers shifting to the new tax regime—which does not allow these deductions—that approach is changing.

"The decision is moving away from tax optimisation and toward pure affordability," Mishra said.

Today, borrowers are placing greater emphasis on factors such as the EMI-to-income ratio, loan tenure and their ability to continue repayments even if interest rates increase.

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Old Tax Regime still has an edge

Despite the growing popularity of the new tax regime, the old regime continues to remain beneficial for a section of borrowers.

Individuals with large home loans, significant annual interest payments and self-occupied homes may still find the old regime more tax-efficient because of deductions available under Section 24(b), along with principal repayment benefits under Section 80C.

For such borrowers, the tax savings can still materially reduce the effective cost of borrowing, making the old regime a more attractive option despite its relatively higher tax rates.

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Tax slabs under Old Tax Regime

Annual Taxable Income	Income Tax Rate (Old Tax Regime)
Up to ₹2,50,000	Nil
₹2,50,001 – ₹5,00,000	5% of the income exceeding ₹2,50,000
₹5,00,001 – ₹10,00,000	₹12,500 + 20% of the income exceeding ₹5,00,000
Above ₹10,00,000	₹1,12,500 + 30% of the income exceeding ₹10,00,000

First-time homebuyers

The new tax regime is changing how first-time buyers structure their loans rather than whether they purchase a home.

Earlier, borrowers paying substantial annual interest and principal repayments could claim tax deductions that lowered the effective cost of servicing a home loan. These benefits often encouraged buyers to opt for slightly larger loans than they otherwise would have.

Without these tax incentives, households are increasingly choosing loan amounts based on what they can comfortably afford each month instead of what offers the biggest tax advantage.

This, experts say, is leading to more conservative borrowing decisions and greater financial resilience.

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Tax slabs under New Tax Regime

Annual Taxable Income	Income Tax Rate (New Tax Regime)
Up to ₹4,00,000	Nil
₹4,00,001 – ₹8,00,000	5% of the income exceeding ₹4,00,000
₹8,00,001 – ₹12,00,000	₹20,000 + 10% of the income exceeding ₹8,00,000
₹12,00,001 – ₹16,00,000	₹60,000 + 15% of the income exceeding ₹12,00,000
₹16,00,001 – ₹20,00,000	₹1,20,000 + 20% of the income exceeding ₹16,00,000
₹20,00,001 – ₹24,00,000	₹2,00,000 + 25% of the income exceeding ₹20,00,000
Above ₹24,00,000	₹3,00,000 + 30% of the income exceeding ₹24,00,000

What it means for lenders

The shift is also influencing how housing finance companies assess borrowers.

Lenders are increasingly adopting a cash flow-first approach, with greater emphasis on actual repayment capacity, income stability and long-term affordability. Underwriting decisions are becoming less dependent on assumptions about tax savings and more focused on a borrower's ability to service the loan under different economic conditions.

According to Mishra, this creates a healthier lending environment by reducing the likelihood of borrowers taking on excessive debt solely because tax incentives make larger loans appear more affordable.

As more taxpayers migrate to the new tax regime, industry experts expect affordability, income stability and financial discipline to become the defining factors in home loan decisions, while tax planning is likely to remain relevant mainly for high-ticket borrowers with more complex financial profiles.

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