New Tax Regime: If you want to do new tax planning in the new financial year, then shift to the New Tax Regime. The first benefit is no tax on income up to 12 lakhs. The second benefit is that if you have NPS, you can take deduction through corporate account. Standard deduction is also high. Also, with flexi pay components, you can save more salary from going into the tax net. In such a situation, more benefits are being received in the New Tax Regime. And now in the New Tax Regime, there will be exemption in home loan interest as well. But, for this, one rule of income tax has to be followed. This exemption will not be available directly. Let’s understand the whole math.
Old or New Regime, where is more benefit?
The new financial year has started. It is the time for investment declaration, but there is confusion whether to stay in the old tax regime or adopt the new one?
If there is no deduction in the New Regime, then how to benefit?
Most tax deductions cannot be claimed in the New Tax Regime (NTR). In such a situation, the question arises that which one is beneficial – Old or New?
Income tax free up to ₹ 12 lakh
One view is that there is an advantage in the New Tax Regime, because income up to ₹ 12 lakh can be tax free (probably by including standard deduction and rebate), whereas in the old, even after deduction, only up to ₹ 10 lakh can be tax free.
Discount on home loan interest too? How
Another tremendous benefit is being told in the New Tax Regime – tax exemption on home loan interest, but this is not a direct exemption, for this a special rule has to be followed.
Discount will be available only on ‘Let Out Property’
The government started the New Tax Regime in 2020. In this, exemption can be available on home loan interest, but only if the property is ‘let out’ i.e. given on rent. Not on self-occupied.
Main exemptions in Old vs New Regime
Before choosing the regime, it is important to understand which exemptions are available in both the regimes and which are not. Standard deduction is there in both, but the benefits are different. On the other hand, deductions are not there in the new tax regime.
Standard Deduction & 80C
Particular: Standard Deduction Old Regime: ₹50,000 (Salary) New Regime: ₹75,000 (Salary – updated from 2023) Particular: Section 80C (Principal Repay) Old Regime: Available New Regime: Not available
Interest exemption 24(b) & 80EE/EEA
Particular: Section 24(b) (Interest) Old Regime: Exemption up to ₹2 lakh (SOP) New Regime: Not available (with one exception) Particular: Section 80EE/EEA (Extra Int.) Old Regime: Separate exemption was possible New Regime: Discontinued or merged
Truth of interest exemption in New Tax Regime
The simple answer is there is no 24(b) exemption on Self-Occupied, in New Tax Regime under Section 24(b) There is no direct deduction on interest on self-occupied property. Only standard deduction, NPS employer contribution etc. are valid.
If you have given the house on rent, you will get benefit
If you have given the house on rent (Let-Out), then you can adjust the net loss due to interest while calculating ‘Income from House Property’.
‘Indirect’ benefit of interest
The difference between the entire interest of home loan and income from rent is called loss. You can set it off by deducting it from your other income.
How to benefit on home loan interest?
Example: Rent ₹1 lakh, Interest ₹3 lakh Home loan interest paid = ₹3,00,000 Annual income from rent = ₹1,00,000 Net loss (from house property) = ₹2,00,000 (This loss is arrived at after deducting rental income from interest) Benefit: You can adjust this loss of ₹2 lakh in the New Tax Regime.
Self-occupied = No exemption, Let-out = Loss set-off
Self-occupied → No tax exemption on interest (in New Tax Regime). Let-out → Loss on rental income can be set-off against other income.
Only loss up to ₹2 lakh will be adjusted
Note! You can set-off the loss from house property against other income up to a maximum of ₹2 lakh in a year, even if your actual loss (due to interest) is more than this.
Take expert advice
There is no direct exemption on home loan interest in the New Tax Regime, but there is an indirect benefit of loss set-off on let-out property. This is the rule of the Income Tax Department. Before taking any decision, definitely talk to your financial advisor.
