New vs Old Tax Regime: Treatment of Home Loan Interest in Case of Rented Property

If you have taken a home loan to buy a house and you have rented it out, you will be paying an amount as interest on that loan. But did you know you can get some tax benefits on this interest? The Income Tax Act allows taxpayers to claim a deduction on home loan interest. However, this tax benefit depends on which tax regime you choose, the Old tax regime or the New tax regime. Let us understand this with the help of an example. We will take three different situations, having different amounts of Rent.

Situation 1

Assume you earn a salary of Rs 12,00,000 and receive a rent of Rs 1,20,000 from a house property. After claiming the standard deduction of Rs 36,000 on rent, the net income from house property is Rs 84,000. You pay Rs 2,00,000 as interest on a home loan; this will result in a loss of Rs 1,16,000 under the head “Income from House Property“.

New Tax Regime: Under the New Tax Regime, your salary after claiming a standard deduction of Rs 75,000 is Rs 1125000. The loss of Rs 1,16,000 from house property cannot be set off against salary income, and the loss will lapse. The taxable income becomes Rs 11,25,000.

Old Tax Regime: Under the Old Tax Regime, your salary after claiming a standard deduction of Rs 50,000 is Rs 1150000. The house property loss of Rs 1,16,000 can be set off from salary income. The taxable income will become Rs 10,34,000.

Situation 2

Suppose the salary is the same at Rs 12,00,000, but the rent you receive is Rs 360,000. After the standard deduction of Rs 1,08,000, the net rental income becomes Rs 2,52,000. You pay Rs 2,00,000 as home loan interest, resulting in a profit of Rs 52,000 under the house property.

New Tax Regime: Under the New Tax Regime, your salary after claiming a standard deduction is Rs 1125000. Here, the Rs 52,000 will be added to this salary, making the taxable income Rs 11,77,000.

Old Tax Regime: In the Old Tax Regime, with a Rs 50,000 salary deduction, the salary income is Rs 11,50,000. After adding the Rs 52,000 house property income, the total taxable income becomes Rs 12,02,000.

Situation 3

Assume you earn a salary of Rs 12,00,000 and receive a rent of Rs 3,60,000 from a house property. After claiming the standard deduction of Rs 1,08,000 on rent, the net income from house property is Rs 2,52,000. You pay Rs 6,00,000 as interest on a home loan, which will result in a loss of Rs 3,48,000 under the head “Income from House Property”.

New Tax Regime: Under the New Tax Regime, your salary after a standard deduction of Rs 75,000 is 11,25,000. But you cannot set off this loss, and it lapses. So, the taxable income remains Rs 11,25,000.

Old Tax Regime: Under the old Tax Regime, your salary after a standard deduction of Rs 50,000 is Rs 11,50,000. The loss of up to Rs 2,00,000 can be set off against salary income under the old regime, making the taxable income Rs 9,50,000. The remaining Rs 1,48,000 loss can be carried forward to future years.