The New tax Regime was announced in the Union budget of 2020-2021. As per a circular from the Central Board of Direct Taxes (CBDT) on April 13, 2020, salaried individuals can pick a tax regime for salary TDS. You can't change your chosen regime during the financial year. Your employer will deduct taxes based on the regime you chose in April. However, you can opt for a different regime when filing your Income Tax Return (ITR).

Many of these tax regulations under New Tax Regime affect various aspects of investments. One such regulation that will leave the potential borrowers disappointed, is the unavailability of a home loan tax benefit under Section 24.

Under the Old Tax Regime, tax benefits under Section 24B offers home loan tax benefits. But upon choosing New Tax Regime, the benefit cannot be claimed. The tax benefit is especially proven useful in the affordable housing segment.

Curious about the Section 24A? Read this article to know and how will this affect you.

What is Section 24B and its Benefits?
Under Old tax regime, benefits of Section 24B provides an additional tax rebate of up to INR 2 lakhs on home loan interest paid. This tax benefit on home loan interest is over and above INR 1.5 lakhs under Section 80C, available on home loan principal amount.

Online tax calculators can help you calculate tax benefits on your home loan.

Home Loan Tax Benefits in the New Income Tax Regime

In the new income tax policy, you can't claim an exemption on the interest paid for a self-occupied property under section 24. Moreover, since deductions under 80C are not allowed in the new regime, you can't claim an exemption on the principal amount either.

In other words, you can't get exemptions on both the principal and interest paid for a Home Loan on a self-occupied property under the new income tax rules. However, you can still claim an exemption on the home loan interest paid for a rental property.

Also Read: New Tax Regime vs. Old Tax Regime: Know the Difference & Effect on Home Loan

Old Tax Regime or New Tax Regime – What Should You Choose?

Choosing between the old and new tax regimes is crucial, especially when planning for a home loan. Under the old tax regime, you can claim tax exemptions and deductions, reducing your taxable income. Calculate your tax liability after deductions to compare with the new regime.

The new tax regime offers enticing benefits to encourage adoption. Here's what's changed:

1. Increased Basic Exemption Limit: The basic exemption limit under the new tax regime is now Rs 3 lakh, up from Rs 2.5 lakh. This change applies from April 1, 2023, and is uniform for all age groups.
   
   
2. Standard Deduction: Salaried and pensioners can now claim a standard deduction. For FY 2023-24, it's Rs 50,000 for individuals and Rs 15,000 for family pensioners.
   
   
3. Zero Tax for Incomes up to Rs 7 lakh: Individuals with taxable income up to Rs 7 lakh won't pay any tax. Even those earning up to Rs 7.5 lakh can avail a standard deduction, resulting in zero tax liability.
   
   
4. Default Option: The new regime is now the default option. Your employer will apply the new tax slab unless you specify the old regime.

However, note that nearly 70 exemptions present in the old tax structure are absent in the new one. Regarding the old tax regime, no changes have been made for FY 2023-24. If you opt for the old regime, your tax calculation remains the same as in previous years. Consider these factorsyou’re your income tax slab carefully before making your choice.

Maximize Tax Benefits with Joint Home Loans

Apply for a joint home loan to maximise tax benefits on your annual income. When you apply for a joint home loan, both borrowers are eligible for tax benefits if opted for Old tax regime.

Also Read: Maximising Tax Benefits: Navigating the World of Joint Home Loan Ownership

In Conclusion
Home loans not only help you buy your dream home, but the associated tax benefits also aid in lowering your tax outgo. Utilise the different sections of the Income Tax Act to maximise tax benefits from your home loan and plan your finances for a better and secure tomorrow!

The contents of this article are for information purposes only and not a financial advisory. The information is subject to update, revision, and amendment and may change materially. The information is not intended for distribution or use by any person in any jurisdiction where such distribution or use would be contrary to law or regulation or would subject Godrej Capital or its Affiliates to any requirements. Godrej Capital or its Affiliates shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any decisions, financial or otherwise based on the contents and information mentioned. For more information, please visit www.godrejcapital.com