Tax query explained: Can taxpayers limit their tax expenses with housing loans within the scope of the New Tax Regime?

New Tax Regime and Old Tax Regime: Taxation is a very important aspect of managing our personal finances. Until 2020, individuals could only declare their taxes under the old regime. However, the government introduced a new tax regime in the Union Budget 2020 to simplify the process by offering lower tax rates but reducing the number of deductions available.

From FY 2024, the new tax regime, which offers a more efficient process but includes fewer deductions, is the default option for filing taxes. The old regime, which allowed various cuts, remains an alternative option. It is important for taxpayers to carefully select the appropriate tax regime at the beginning of the financial year to ensure taxes are calculated according to applicable tax brackets.

How much tax do I need to pay? Calculate now

In the old tax system, the Income Tax Department offered tax benefits for home loans under the Income Tax Act, 1961. These benefits apply to both principal repayments and interest payments. Tax deduction can be claimed for both categories under Section 80C and Section 24(b) of the Income Tax Act respectively. Under Section 80C, maximum tax deduction up to Rs 1.5 lakh per financial year can be claimed on the main repayment component of EMI. However, this deduction can only be claimed after the construction of the house is completed.

However, there is no such provision in the New Tax Regime.

In the new tax system, individuals have the right to receive a deduction from mortgage interest payments on rented houses.

“Under the default tax regime, individual taxpayers do not have the right to claim deductions for mortgage interest payments received on their own residences. However, taxpayers can claim deductions for mortgage interest payments if their residences are actually registered. They can claim deductions for mortgage interest payments on real estate that is rented/rented. “However, the loss on residential properties from earlier years (before the new regime) will not be allowed to be carried forward,” said Harsh Bhuta, Partner at Bhuta Shah & Co LLP.

Also, consider claiming home property losses if you have an existing mortgage to lower your overall taxable income and reduce your overall tax burden. This strategy allows you to offset the loss from your other income, potentially reducing your net tax expense.

There are no restrictions on offsetting home property losses against income from other residential properties. However, there is a cap of Rs 2 lakh while balancing home property losses against other sources of income. Any excess loss exceeding Rs 2 lakh can be carried forward for up to 8 years in case you opt for the old tax regime while filing your income tax return. Conversely, under the new tax regime (section 115 BAC), personal residential property losses cannot be offset against any other income or carried forward.

In the statement made by the Income Tax Department, “In accordance with Article 115 of BAC, it will not be possible to offset the current year housing ownership loss from any other income within the scope of the new tax regime. Moreover, the loss under this heading will not be carried forward. It should also be noted that, “In detached properties, it is not permissible to offset the interest paid on the housing loan.”

Old Tax Regime

In the old regime, mortgage loan interest deduction could be requested as follows:

*In accordance with the income tax provisions, an individual taxpayer has the right to own and keep 2 residences as detached houses. Accordingly, Rented Property refers to the 2 detached houses owned by a taxpayer as well as the additional residential property he owns.

Further, if the property is let/deemed to be let, loss above Rs 2 Lakh will be allowed to be carried forward to the next 8 Assessment Years (AYs).