HRA vs Home Loan: What Saves You More Income Tax After Budget 2026?

As the 2026 Union Budget settled into place, many salaried taxpayers are asking a familiar question: Does claiming House Rent Allowance (HRA) or using home loan tax benefits bring greater relief on income tax? With no major changes to exemptions in this year’s budget, the answer depends on your living situation, the tax regime you choose, and your annual earnings. Here’s a clear comparison to help you decide.

What Is HRA and How Is It Exempt?

House Rent Allowance (HRA) is part of a salaried employee’s pay designed to help cover rental costs. Under the old tax regime, HRA can be partly exempt from taxable income under Section 10(13A), but only up to the lowest of:

• The HRA received from the employer;
• 50 % of salary for those in metro cities (40 % for non-metros);
• Rent paid minus 10 % of salary.

Because this exemption isn’t capped by a fixed limit like Section 80C or Section 80D deductions, it often delivers significant tax relief for those who pay high rent. However, this benefit is available only if you opt for the old tax regime; it largely disappears under the new tax regime.

Home Loan Tax Benefits Explained?

Taking a home loan opens up tax deductions on both the interest and principal components of your EMI under the old regime:

• Interest paid on a home loan for a self-occupied property is deductible up to ₹2 lakh under Section 24(b);
• Principal repayment qualifies for deduction under Section 80C (up to ₹1.5 lakh).

Under the new tax regime, most deductions such as 80C and Section 24(b) are not available. The only relevant deduction left is interest on a loan for a rented-out property, which can be claimed without an upper cap.

Side-by-Side Comparison

Budget 2026 did not amend limits for either HRA or home loan deductions, so taxpayers must choose the path that suits their circumstances. An illustrative comparison from recent tax guides helps make this practical.

Imagine two individuals earning the same annual salary of ₹35 lakh. One claims HRA, the other owns a house and claims home loan deductions. In this example:

• The tenant may enjoy an HRA exemption of roughly ₹3.4 lakh, bringing taxable income substantially lower.
• The homeowner may show a loss from house property because interest paid on the loan exceeds rental value; after standard and 80C deductions, their net taxable income is higher.

In the example shared by tax analysts, the tenant ends up with a tax liability of around ₹7.28 lakh, while the homeowner’s liability is about ₹7.72 lakh, indicating HRA can save more tax in this specific scenario under the old regime.

Choosing Between Tax Regimes

A key part of the HRA vs home loan decision is which tax regime you adopt. Under the old tax regime, both HRA and home loan deductions are available, and their value depends on your salary, rent paid, city of residence, and loan interest. Under the new tax regime, most exemptions and deductions—including both HRA and common housing-loan benefits—are removed, simplifying the tax calculation but reducing options for relief.

For many taxpayers earning higher incomes who make large rent payments, HRA under the old regime may offer greater relief than home loan deductions, provided the numbers support it. Lower-income taxpayers, or those with modest housing costs or smaller loans, might find the simplicity and lower rates of the new regime preferable.

Final Thoughts

There is no universal answer to whether HRA or housing loan deductions save more tax after Budget 2026. The right choice depends on personal finances, rent vs EMI amounts, and whether you claim deductions under the old regime. Budget 2026 kept the existing framework intact, so planning around your income, deductions and overall tax liability remains the best strategy for maximising savings.