Earning rent but also paying rent? Here is what new and old tax regimes say

Treatment of HRA and rent received under new and old tax regime is different.

I have an apartment in Delhi but work in another town and have rented out my flat. I live on rent in the town where I work and also get house rent allowance. Under the new regime, I am paying tax on my rental income but cannot deduct the rent I pay. What should I do?

Expert’s Take: Under the new tax regime (Section 115BAC of the Income Tax Act), most exemptions and deductions that were available under the old regime have been withdrawn. This includes the HRA exemption under Section 10(13A) and the deduction for rent paid under Section 80GG. As a result, even if an individual pays rent for accommodation in the place of work, it cannot be claimed as a deduction under the new regime. At the same time, rental income from the owned property in Delhi remains taxable as “income from house property” after allowing the standard deduction of 30 percent and municipal taxes, if any.

The inability to claim rent paid is essentially because the new regime offers concessional slab rates in exchange for giving up exemptions and deductions. The only way to claim relief on rent paid is by opting for the old regime, where HRA exemption (subject to conditions) can be availed.

Therefore, the choice between regimes should be based on comparing your overall tax outflow under both options. For taxpayers who have significant exemptions such as HRA, deductions for investments, or interest on housing loans, the old regime may turn out to be more beneficial.

Disclaimer: The views expressed by experts on Moneycontrol are their own and not those of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.