Want to pay 0 income tax on your Rs 14,75,000 income? This home loan interest-related rule can help you a great deal
New Tax Regime Tax Savings: When we think about saving tax on a home loan, the immediate picture that comes to our mind is of the old tax regime, which provides benefits not only on interest but also on the principal. But taxpayers in the new tax regime can also save up to Rs 2,00,000 on home loan interest. But there is a catch! See maths to understand!
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01:16 PM IST
How to save tax in new tax regime: The new tax regime is a sensation among taxpayers! They don't need to pay any tax on income up to Rs 12 lakh earned in the financial year 2025-26. If they are salaried-class individuals, this limit is Rs 12.75 lakh with a standard deduction of Rs 75,000. But many complain that the charm of having tax-saving benefits of the old tax regime is not in the new. It's true! But partially. Like the new tax regime provides tax benefits for employer contributions to National Pension System (NPS). If that's not enough, it provides up to Rs 200,000 in tax benefits on home loan interest! Yes, you heard that right! But there is a catch!
When we think about availing tax benefits on a home loan, the first picture that strikes our mind is of the old tax regime, which provides benefits on the principal as well as interest!
On a joint home loan with a spouse, benefits were up to Rs 7 lakh on the first home loan.
However, home loan tax benefits can easily make your Rs 14.75 lakh income from salary completely tax free. Know how you may do that!
Home loan interest benefit in new tax regime
One can take this tax benefit on the interest paid on a loan for a home which you have let out.
If you are residing in the home, you can not claim the tax benefit.
Under this rule, you can set off the net loss on home loan interest against the rental income.
The maximum tax benefit under this provision is Rs 2 lakh.
Calculations for home loan tax benefit in new tax regime
Scenario 1
Interest on home loan paid = Rs 4,00,000
Rental income = Rs 2,00,000
Net Loss = rental income-home loan interest
= Rs 4,00,000-2,00,000
= Rs 2,00,000
In the new tax regime, you can adjust the income of Rs 2 lakh against the loss of Rs 2 lakh.
Scenario 2
Interest on home loan paid = Rs 7,00,000
Rental income = Rs 2,00,000
In this condition, the loss is Rs 5,00,000, but the maximum tax benefit you can take is Rs 2,00,000.
Scenario 3
Interest on home loan paid = Rs 3,00,000
Rental income = Rs 4,00,000
Since there is no loss of income, there will be no tax benefit.
How you will pay 0 tax on Rs 14,75,000 income
If your income from salary is Rs 14,75,000, and you have a loss of Rs 2,00,000 on home loan interest against the rental income, your taxable income will be Rs 12,75,000. After a standard deduction of Rs 75,000, the total taxable income will be Rs 12,00,000, which is tax-free.
Things to know about home loan tax benefits in new tax regime
If your house on which you have taken a loan is self-occupied, there will be no benefit.
If the same house is on rent (let-out), the interest can be set-off against the rental income.
If your expenditure is more than Rs 2 lakh, it will not be adjusted against your other income head (limit).
The government has imposed a limit. You can do such set-off for only up to Rs 2,00,000 in tax benefits in a financial year.
(Disclaimer: This is not advice. Please consult with an expert for income tax planning.)
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