Can You Claim HRA Exemption Under the New Tax Regime and With a Home Loan?

HRA (House Rent Allowance) is one of the most important tax exemption components for millions of salaried individuals in India, especially for high-cost urban/metro areas (under the old tax regime). But after the introduction of the new tax regime from FY21, one can’t claim HRA deduction under this new tax regime, even if one pays rent. The HRA tax deduction is still available under the old tax regime (u/s 10-13A-r/w Rule 2A). In the new tax regime (u/s 115BAC)-default since FY25 and continuing unchanged for FY26-27, almost all tax exemptions & deductions, including HRA, are not allowed. But the new tax regime also offers higher exemptions by default, and an annual salary income of around ₹12.75 lakh is now tax-free (after a major step taken in the 2025 budget, effective from FY26). 

Thus, any employee receiving the HRA allowance portion in his salary will be clubbed with basic salary under the new tax regime to become fully taxable as part of the salary income slab. Although home loan benefits follow a similar pattern, it has a key exception and is allowed even in the new tax regime, partially only for let-out property, not for self-occupied property. Under the new tax regime, full home loan interest deduction is allowed without any cap for let-out property, but principal repayment is not deductible. Also, for let-out rented property, one has to pay tax on their rental income separately.

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HRA Exemption

• New Regime: Not available — fully taxable, no exemption/deduction possible.
• Old Regime: Available — exempt up to the least (minimum) of:
  • Actual HRA received
  • Actual Rent paid minus 10% of salary
  • 50% of salary (metro cities: Delhi, Mumbai, Kolkata, Chennai) or 40% (non-metros)

Home Loan Interest Deduction (Section 24(b))

New Regime:

• Self-occupied property: No deduction on interest (not allowed under Section 115BAC).
• Let-out (rented-out/vacant) property: Yes — full interest deduction allowed (no limit), and you can claim loss from house property.
• Principal repayment: Not deductible (Section 80C not available).
• No additional deductions under 80EE/80EEA.

Old Regime:

• Self-occupied property: Up to ₹2 lakh deduction on interest paid.
• Let-out (rented-out/vacant) property: Full interest deduction (no upper limit), can create/set off house property loss.
• Principal repayment: Deductible under Section 80C (up to ₹1.5 lakh, shared with other investments).
• Additional benefits are possible under Section 80EE/80EEA for first-time/affordable housing buyers.

Can You Claim Both HRA and Home Loan Benefits under the New Tax Regime?

The simple-straight forward answer is ‘no ’-you can’t claim any HRA benefit in the new tax regime, but you can claim Home Loan Benefits in the new tax regime, selectively for any let-out property, not for any self-occupied property (under home loan).

• If renting (paying rent + claiming HRA): You can claim the HRA exemption only in the old regime. 
• Home loan interest deduction is possible only if the property is let out (in the new regime) or self-occupied/let-out (in the old regime). 
• You cannot claim HRA if you own and occupy the house under both regimes (as the rent paid condition fails).

If owning a home with a loan + renting elsewhere: Rare scenario (e.g., job location requires rent in Bangalore while owning elsewhere in Kolkata). 

• In the old regime, you could potentially claim both HRA exemption (for rent paid) and home loan interest (for self-occupied/let-out property). 
• In the new regime, no HRA, but let-out interest is allowed.

Key point: HRA is an exemption (reduces taxable salary), while home loan interest is a deduction (from house property income). They are not mutually exclusive in the old regime if conditions are met.

Note: Under the new tax regime, an annual salary income of around INR 12.75 lakhs is virtually tax-free vs INR 5.50 lakhs in the old tax regime after the application of basic standard deduction and tax rebates available u/s 87A. But in the old tax regime, one can claim more deductions/exemptions under various provisions like home loan interest/principal, HRA exemption, various investments, etc., making an income of around INR 10 lakhs virtually tax-free.

Conclusions

If you pay significant rent and want an HRA exemption, opt for the old regime (and claim home loan benefits if applicable). If your rent is low/minimal deductions overall, the new regime may still be better due to lower slab rates, higher standard deduction, and a rebate, making income up to ~₹12-13 lakh effectively tax-free in many cases. If you are an aggressive saver & investor and moderate spender, you may opt for the old regime; otherwise, the new regime may benefit you more.