Tax query explained: Can taxpayers limit their tax outgo with home loan under New Tax Regime? 

New Tax Regime vs Old Tax Regime: Taxation is a crucial aspect of managing our personal finances. Up until 2020, individuals could only file their taxes using 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. 

Starting from FY2024, the new tax regime, which features a more efficient process but fewer deductions, is the default option for filing taxes. The old regime, which allows for various deductions, remains an alternative choice. It is important for taxpayers to carefully select the appropriate tax regime at the start of the fiscal year to ensure that taxes are calculated based on the applicable tax slabs.

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

But under the New Tax Regime, there is no such provision. 

In the new tax system, individuals are eligible to receive a deduction for the interest payments on home loans for properties that are rented out.

"Under the default tax regime, the individual taxpayers are not entitled to claim deduction in respect of interest on housing loan on self-occupied house properties. However, the taxpayers can claim the deduction for housing loan interest payments, if their house property is actually let-out or considered as Deemed Let-out. There is no upper limit for claiming deduction regarding the interest payments on rented / deemed rented properties. In case of loss arising out of excess interest payments, such loss cannot be set off against any other income and will be carried forward to subsequent AYs. However, the loss from house property of earlier years (prior to the new regime) would not be allowed to be carried forward in the future," said Harsh Bhuta, Partner at Bhuta Shah & Co LLP.

Type of House Property	Quantum of Deduction (INR)	Amount of set-off (INR)
Self-occupied	NIL	NIL
Let-Out	No upper limit	NIL
Deemed Let-out *	No upper limit	NIL

Also, to lower your overall taxable income and decrease your total tax burden, consider claiming a loss from house property if you have an existing home loan. This strategy allows you to offset the loss against your other incomes, potentially reducing your net tax outgo.

There is no restriction on offsetting house property losses against income from other house properties. However, there is a cap of Rs 2 lakh when offsetting house property losses against other sources of income. Any excess loss beyond Rs 2 lakh can be carried forward for up to 8 years if opting for the old tax regime while filing your income tax return. Conversely, under the new tax regime (section 115 BAC), self-occupied house property losses cannot be offset against any other income or carried forward.

In the Income Tax department's words: "As per section 115 BAC, set-off of current year house property loss shall not be available against any other head of income under the new tax regime. Also, any remaining loss under this head cannot be carried forward. Also, it may be noted that in respect of self-occupied property, deduction of interest paid against home loan is not permissible." 

Old Tax Regime

Under the old regime, the deduction in respect of interest on housing loan can be claimed in the following manner: 

Type of House Property	Quantum of Deduction (INR)	Amount of set-off (INR)
Self-occupied	2 Lakhs2 Lakhs
Let-Out	No upper limit	2 Lakhs
Deemed Let-out *	No upper limit	2 Lakhs

*As per the Income-tax provisions, an individual taxpayer is entitled to own and hold 2 house properties as self-occupied house property. Accordingly, the Deemed Let-out Property refers to the additional house property owned by a taxpayer over and above 2 self-occupied house properties held by him.

Further, in case of let-out / deemed let-out property, the loss above Rs 2 Lakhs will be allowed to be carried forward to 8 subsequent Assessment Years (AYs).