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Suspense Crime,Digital Desk:New Tax Regime: For those of you who plan to do reorganizing of taxes for finances in the upcoming financial year, shifting to the New Tax Regime is recommended. The New Tax Regime offers the benefit of no tax on income up to 12 lakhs. If an individual possesses a National Pension Scheme (NPS), a corporate account deduction can also be claimed. The Standard deduction is considerably higher. Moreover, with the flexi pay components, more salary can be saved from going into the tax net. In this regard, more benefits under New Tax Regime. Additionally, now the New Regime will also allow exemptions on home loan interest. However, these is one rule under Income tax. This exemption will not be available directly. Let's comprehend the entire math.
Where do you get more benefits from: the Old or New Regime?
The 2023 – 24 financial year is off and running. It’s that time again when you have to declare the investments and there’s still the dilemma of whether you want to remain in the old tax regime or switch to the new one.
What is the new regime benefit if there is no deduction available?
There are very few exceptions to claiming tax deductions, such as the one that comes with the new regime. This gives less flexibility for claiming deductions which raises the question of which one would be more beneficial: the Old or the New?
Income tax free up to ₹12 lakh
His one view is that the New Tax Regime is somehow favored because the income level of up to ₹12 lakh is apparently income tax free (likely due to automatic inclusion, standard deduction, as well as a rebate), while in the Old one after having all possible deductions, cap only up to ₹10 lakh.
Deduction on home loan interest too? How?
Another great benefit: being told in the New Tax Regime – tax exemption on home loan interest but not in this direct way, rather must conform to specific procedures in order to achieve such benefits.
Exemption will now only apply to ‘Let Out Property’
The government implemented the New Tax Regime in 2020. In this, exemption can be allowed on home loan interest but only if the property is let out, meaning it is rented out, not on self-occupied.
Main Exemptions In Old V/s New Regime
In any case, it is advised that before making a choice between a regime, one should analyze what are all exemptions available in both the regimes and what are the available ones in each of them. Standard deduction is allowed in both, however, the advantages differ. As for the other hand, the new tax regime does not allow for deductions.
Standard Deduction: 80C
Particular: Standard Deduction Old Regime: ₹50,000 [(Salary)] New Regime: ₹75,000 [(Salary - updated from 2023)] Particular: Section 80C (Principle Repay) Old Regime: Available New Regime: Not Available
Interest exemption 24(b) & 80EE/EEA
Particular: Section 24(b) (Interest) Old Regime: Exemption upto ₹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 whole picture regarding 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) Apart from, standard deduction, NPS employer contribution etc.
If the house is given on rent, you will get the benefit
If you have let out your home with a home loan then you can adjust the net loss on account of interest while calculating ‘income from house property’.
‘Indirect’ benefit of interest
The difference between the total interest on the home loan and income from rent is called loss. You can set it off by setting it off from your other income.
How does one benefit from the interest on home loans?
Illustration: Renting a home–₹1 lakh; interest on paying off home loan–₹3 lakh Interest paid on loan = ₹3,00,000 Rent per annum = ₹1,00,000 Estimated loss (from home) = ₹2,00,000 (This figure is noted after applying rental income to interest paid) Benefit: This loss of ₹2 lakh can be claimed in the New Tax Regime.
Self-Occupied = No exemption available, Let-out = Set off loss available
Self-occupied residence → No exemption on tax in interest paid (in New Tax Regime). Rented house (Let-Out) → Loss on rental income can be set off against other income.
Only limited to a loss of ₹2 lakh
Note! If you possess a house, you can claim a loss from house property against other income, to the maximum of ₹2 lakh per annum, regardless if the actual loss exceeds this.
Consult a specialist
Home loan interest does not have a direct exemption in the Tax Regime, however, losses applicable on let-out properties can be set-off, hence not paying tax on loan interest. Purely a matter of law. Speak to your financial advisor before taking any decision.
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