HRA vs housing loan; which one saves you more income tax after Budget 2026?

House Rent Allowance is an allowance provided by the employer to the employee to cover the cost of living in rented accommodation and it is part of your CTC. On this HRA component, you can claim income tax exemption under Section 10(13A) up to specified limits. For home loan, the interest and principal component up to specified limits is allowed as tax deduction under the old tax regime. But in the new tax regime only interest on home loan for let out (rented out) house properties is allowed without any limits. Budget 2026 has not changed any of the limits either under HRA or home loan.

The tax exemption for HRA is limited to the lowest of the following options:

• The amount of house rent allowance received, or
• 50% of salary* in case of employees residing in the four metro-cities (Mumbai, Kolkata, Chennai, and New Delhi excluding the NCR region - Gurgaon, Noida and Faridabad) and 40% of salary in case of employees residing in other cities, or
• Excess of rent paid over 10% of the salary due for the relevant period

Also read | Income Tax Slabs FY 2025-26 (AY 2026-27) Budget Live


Let us understand which out of HRA and home loan can save you more tax under old tax regime after Budget 2026, as reported in TOI.

House Rent Allowance (HRA) is a tax break which salaried taxpayers usually receive, and it’s one of the few exemptions without a maximum limit. For instance: Section 80C has a cap of Rs 1.5 lakh, and Section 80D has limits of Rs 25,000 or Rs 50,000, but HRA doesn’t have that restriction. Still, that doesn’t mean that HRA is completely unlimited.

Also read | 10 ways individual taxpayers will be impacted most from Budget 2026

We will understand the comparison between HRA and home loan for tax saving with the following example:

A comparison between a salaried individual claiming HRA and a homeowner servicing a housing loan shows that the HRA route results in a lower tax outgo under the old tax regime, even though both earn the same annual salary of Rs 35 lakh.

While the tenant is able to claim an HRA exemption of Rs 3.4 lakh, the homeowner instead reports a loss of Rs 2 lakh from house property due to home loan interest. After accounting for the standard deduction and Section 80C benefits, the tenant’s taxable income works out lower, leading to a tax liability of Rs 7.28 lakh, compared with Rs 7.72 lakh for the homeowner.

How HRA helps

Example 1: No HRA deduction

Particulars	Old Tax Regime (in ₹)	New Tax Regime (in ₹)
Annual Salary	15,00,000	15,00,000
Less: Standard Deduction	(50,000)	(75,000)
Gross Taxable Income	14,50,000	14,25,000
Less: Section 80C Deduction	(1,50,000)	-
Less Section 80D Deduction	(50,000)	-
Net Taxable Income	12,50,000	14,25,000
Total Tax Liability	1,95,000	97,500

Source: Nangia & Co LLP

Example 2: HRA deduction

Particulars	Old Tax Regime (in ₹)	New Tax Regime (in ₹)
Annual Salary	15,00,000	15,00,000
Less: Standard Deduction	(50,000)	(75,000)
Less: HRA Deduction (assumed 25% of annual salary)	(3,75,000)	-
Gross Taxable Income	10,75,000	14,25,000
Less: Section 80C Deduction	(1,50,000)	-
Less Section 80D Deduction	(50,000)	-
Net Taxable Income	8,75,000	14,25,000
Total Tax Liability	91,000	97,500

With inputs from TOI