Home loan exemption up to ₹ 2 lakh will also be available in the new tax regime! Just memorize this income tax rule

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 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?

In the new tax regime (NTR), most tax deductions cannot be claimed. In such a situation, the question arises as to which is more 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 one, even after deduction, only up to ₹10 lakh can be made tax free.

Deduction on home loan interest too? How?

Another great benefit is being told in the New Tax Regime – tax exemption on home loan interest, but this is not a direct exemption, a special rule has to be followed for this.

Exemption will be available only on ‘Let Out Property’

The government started the New Tax Regime in 2020. In this, exemption can be given on home loan interest, but only if the property is ‘let out’ i.e. rented out. Not on self-occupied.

Main exemptions in Old vs New Regime

Before choosing a regime, it is important to understand which exemptions are available in both the regimes and which are not. Standard deduction is available 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

The truth about interest exemption in New Tax Regime

The simple answer is there is no exemption under 24(b) on self-occupied property. In the New Tax Regime, there is no direct deduction on interest on self-occupied property under section 24(b). Only standard deduction, NPS employer contribution etc. are valid.

If the house is given on rent, you will get the benefit

If you have let out your home with a home loan, you can adjust the net loss due to interest while calculating ‘income from house property’.

‘Indirect’ benefit of interest

The difference between the total interest on the home loan and the income from rent is called loss. You can set it off by deducting it from your other income.

How to benefit from home loan interest?

Example: Rent ₹1 lakh, Interest ₹3 lakh Home loan interest paid = ₹3,00,000 Annual rental income = ₹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 house → No tax exemption on interest (in New Tax Regime). House is on rent (Let-Out) → Loss of rental income can be set-off against other income.

Only loss up to ₹2 lakh will be adjusted

Note! You can set-off 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.

Seek 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.

The post Home loan exemption up to ₹ 2 lakh will also be available in the new tax regime! Just memorize this income tax rule first appeared on informalnewz.

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