If you’re someone who is planning to purchase a house in your hometown while working in some other city, hence, planning to rent it out, and have taken a house loan for the same, you can save taxes through certain provisions of the New Income Tax Regime. The New Tax Regime is considered to provide limited deductions compared to the old one, however, there are still some ways through which people can reduce taxes on property.
Read the article to learn more about the ways through which you can save taxes on properties under the New Tax Regime.
What Are The Tax Benefits For Rented Properties?
Under the New Tax Regime, people can save taxes through two major types of deductions designed especially for let-out property. Those two are laid down below in detail for one’s better understanding:
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Standard Deduction: People can avail the benefits of a 30% standard deduction from the total rent received after deducting municipal taxes.
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Interest on housing loan: The interest paid on housing loans for let-out properties can be adjusted against the rent received under the Head ‘Income from House Property’. Please note that such interest cannot be considered under the heads of income from salary or business income.
How Will It Be Calculated?
Let’s take an example: suppose the annual rent received from a rented property is Rs. 3 lakh, housing loan interest is Rs. 4 lakh, and municipal tax is worth Rs. 7000.
| Component | Amount in Rupees |
|---|
| Annual rent | 3,00,000 |
| Municipal tax (to be paid) | 7000 |
| Net Annual Value (NAV) | 2,93,000 |
| Standard Deduction (30%: minus) | 87,900 |
| Net Taxable Value | 2,05,100 |
| Interest on housing loan (minus) | 4,00,000 |
| Net Income from house property | -1,94,900 (loss) |
| Tax liability | 0 |
This also represents that rental income of up to Rs. 17 lakh can be free from tax under the New Tax Regime 2025-26.
Can One Claim HRA For The Actual Residence Of The Homeowner?
All those individuals who have rented house properties cannot claim House Rent Allowance (HRA) as per the provisions of the New Tax Regime. HRA is only allowed under the Old Tax Regime.
Conclusion
The New Tax Regime surely provides limited deductions, however, people can still enjoy the deductions provided under the new regime for major things like the purchase of houses. We urge you to have a deeper understanding of both the New Tax Regime and the Old Tax Regime to make informed decisions.
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