New vs old tax regime: How rewarding is let-out property for home loan borrowers?

Tax benefits on a home loan for a let out property

• Each co-owner can claim tax benefits based on ownership and loan repayment share
• Old regime permits Rs 2L interest set-off and Rs 1.5L principal deduction.
• New rule limits interest deduction to rental income; no Section 80C benefit.

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For a jointly owned, let-out property, each co-owner can claim tax benefits based on their respective ownership and loan repayment share. Today's Ask Wallet Wise query decodes how interest deduction rules differ under the old and new tax regimes.

Ask Wallet-Wise initiative offers expert advice on matters related to personal finance and money-related queries. You can email your queries to askwalletwise@nw18.com, and we will try to get a top financial expert to address.

I have recently purchased a new flat jointly with my wife. We both are salaried professionals and have taken a joint loan for this property. I already own a house in my name where we presently reside and will continue to live in the future. I had taken a loan for the construction of this house, on which I had claimed tax benefits.

The loan has been fully paid off and closed in the year 2022. The new property will be my second property and the first property for my wife. What is the maximum tax deduction that we both will individually be able to claim for interest under Section 24 and on principal under Section 80C?

Expert's Advice: It seems that the under-construction property will be let out by you once possession is obtained. Since the property is proposed to be let out, you both will be able to claim 30 percent of the rental income as a standard deduction. Against the balance amount, you will be able to claim your full share of the interest on the home loan serviced. Please note that the share in the home loan may be different from the share in the house.

The rental income will become taxable in the ratio of your ownership in the house. In case you opt for the old tax regime, you will be able to claim a set-off of any loss under the head “Income from house property” due to interest payment, up to Rs 2 lakh per year, against any other income, including salary income. The balance unabsorbed loss, if any, can be carried forward for set-off against house property income in the eight subsequent years.

In case you opt for the new tax regime, you will be able to claim interest only up to your share of rental income after the 30% deduction, as no loss under the head “Income from house property” is allowed to be set off against other income during the same year, nor is it allowed to be carried forward for set-off in subsequent years.

As regards principal repayment, you can claim a deduction of up to Rs. 1.50 lakh per year, along with other eligible items under Section 80C, only if you opt for the old tax regime. Deduction under Section 80C is not available if you opt for the new tax regime.

Please note that both deductions are available only from the year in which construction is completed and possession is obtained.

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.