Session 5 on Finances | Home Loan Taxes Simplified – Old vs New Regime (2024-2025) | Sagar Kakkala’s World

                                                         Disclaimer:

This blog is prepared based on the taxation rules in India as of 2024, with specific reference to the Union Budget 2024-2025 (i.e., April 1, 2024 – March 31, 2025). The information provided is for educational purposes only.

It is highly recommended to consult the latest budget updates and seek advice from your Chartered Accountant (CA) or financial advisor before making any decisions related to home loans or taxation.

While there are minimal changes with every budget release, it is crucial to stay updated with the latest developments and amendments.

While this Blog mainly focuses on Home Loan Taxes, there are certain rules to be followed before considering a home loan or planning to buy a house

As investing in house is a big decision, and Home loans can be on a Tenure of 20 to 30 years, its very important to have some certain criteria fulfilled before buying a home

Financial Rules to be followed before buying a house

1. House values must not exceed 5 times of your annual income.

 For example, Your salary is 20 lakh per annum, House value must not exceed 1 crore 

2. You should have minimum down payment of 20% for house loan.

For example, if house value is one crore, you should have minimum amount of 20 lakh in hand

 3. Your Total EMI´s, must not exceed 40% of Take Home Salary 

 If you are earning 20LPA in India, your take home salary would be around 1,32,000(Considering PF and other deductions) , Your EMI´s must not exceed 52,800 , to be specific if you have ongoing Car EMI already of 10,000 , Your Home loan EMI must not exceed 42,800

 4. Make sure you have Term Insurance (My Personal Advice) 

 In case of your sudden demise, Your term Insurance would act as shield for your family in order to not feel any financial burden, and if you are married, make sure you select MWP

 Note: MWP is Married Woman Property, if you have selected this, Your insurance amount would first go to your wife and only then to banks, In case, unselected, Insurance amount will be first taken by banks 

 In case, you had two marriages, You have taken insurance and selected MWP in first marriage, Though Divorced, Insurance amount will still go to your First Wife unless beneficiary is changed

Also you need to be aware that you need to pay Registration fee and Stamp Duty fee for House or Property that you bought

Important Information:

Registration fee - To put it simply, Your Property in Government Records.

Stamp Duty fee - It is a proof of legal validity, can be used in judiciary in case of disputes.

For House You bought, you need to pay 1% registration fee(can vary depending on state but mostly 1%) of Property Amount and Stamp Duty might vary depending on state and gender - Stamp Duty Charges

Understanding the Basics of Tax Deductions and Tax Slab rates

Now before we begin on tax deductions for home loan, lets understand how tax deductions work on a basic overview

Let us understand Tax Deduction with Example taking Old Regime and New Regime for Budget 2024

Screenshot from timelinedaily

let us understand with example

Section 87A is not considered in any example in the blog for ease of computation

Section 87A:

This section provides a rebate on income tax for individuals whose taxable income (after deductions) does not exceed a specified limit. It is applicable to both the old and new tax regimes, but with different conditions.

Under the Old Regime (FY 2024-25):

Eligibility: Taxable income must be ₹5,00,000 or less.

Under the New Regime (FY 2024-25):

Eligibility: Taxable income must be ₹7,00,000 or less.

In case of old regime

Consider you are earning 8LPA, in that using some sections, you have deductions applicable of 1.5L and you have standard deduction of 50K for old regime

your taxable income is 8-1.5-0.5=6L

here your 6L taxable income is divided into 2.5+2.5+1

for first 2.5L, you will have tax exempt, i.e 0% tax

next 2.5L goes into 5-10L slab, i.e 5% tax

remaining 1L goes into next Slab, i.e, 20% tax

In case of new regime

Consider you are earning 6.75LPA, and you have standard deduction of 75K for new regime

your taxable income would be 6.75-0.75=6

6L is now slabbed into 3L+3L

first 3L will be tax exempt

2nd 3L comes at 5%

Tax Calculation Example: Salary 6LPA

Case	Details	Tax Amount
Case 1: Old Regime	₹0 to ₹2,50,000: No tax (Exempted) ₹2,50,001 to ₹5,00,000: Taxed at 5% → ₹2,50,000 × 5% = ₹12,500 ₹5,00,001 to ₹10,00,000: Taxed at 20% → ₹1,00,000 × 20% = ₹20,000	Total Tax: ₹12,500 + ₹20,000 = ₹32,500
Case 2: New Regime	₹0 to ₹3,00,000: No tax (Exempted) ₹3,00,001 to ₹6,00,000: Taxed at 5% → ₹3,00,000 × 5% = ₹15,000	Total Tax: ₹0 + ₹15,000 = ₹15,000

Home Loan Tax Deductions: Old vs. New Regime

Important Note:

The salary examples provided in this blog, such as a 20 LPA take-home salary, are taken without considering deductions like standard deductions, professional tax, or other deductions.

These examples are meant purely for ease of understanding and calculation. In real scenarios, the actual values may differ from those mentioned here.

Considering 20LPA take home salary is 1,40,000 (average of old regime and new regime without considering deductions)

We will understand further how we can use Tax Deductions in our home loan taxes part

Let’s break down some key terms related to home loan taxation:

Principal Repayment vs. Interest Repayment

When repaying a home loan, the payment is divided into two parts: principal and interest.

Section 80C: Allows deduction on Principal Repayment along with other eligible components.

Section 24B: Allows deduction on Interest Repayment.

Section 24A: Standard Deduction of 30% on Rental Income

Self-Occupied Property: If you took a loan and are staying in the property you bought.

Pre-Construction Property: If you took a home loan for a property under construction.

Let-Out Property: If you rent out the property purchased with a loan.

Set-Off Loss: The loss you can set off by subtracting the interest paid from your net rental income.

Note: You can claim the Registration Fee and Stamp Duty Fee under Section 80C in the same year the payment is made.

Let’s break down the taxes for Self-Occupied, Pre-Construction, and Let-Out properties, and explore how they differ in the New vs Old tax regimes.

Self Occupied Property:

case1: In case, you choose Old Regime

You will be able to claim Repayment of Principal under Section 80C up to limit of 1,50,000 along with other incomes such as  PPF, ELSS, life insurance premiums, etc..

And You can claim Deduction of up to 2 lakh limit for Repayment of Interest under section 24B

Example:

Let us say, you are earning 20L, your monthly salary is 1.40L. In that, your monthly EMI is 40,000 (10,000 Principal Repayment and 30,000 Interest Repayment). Now your Principal Repayment for a year is 10,000 * 12 = 1.2L, and Interest Repayment will be 30,000 * 12 = 3.6L.

Now, you will be able to claim 1.2L under Section 80C and under Section 24B, you can claim only 2L.

So, now 20L - 1.2L - 2L = 16.8L. Now you will be considered in tax slab for 16.8L, not 20L.

Note: Income deducted on Principal Repayment will be imposed back if house is sold within 5 years of Purchase. 

Your Interest Repayment will not be added back

For example, Consider you are earning 20L per  year and you are paying 1.2L per year as your Principal towards home loan, and for two years, your Principal payment is 2.4L. If you decide to sell the house, you will be taxed 20L+2.4L that fiscal year of house that you have sold.

case2: In case, you choose New Regime for Self Occupied Property

There is no Section80C, Section 80E,Section 80EEA or Section 24B

We will learn about section 80E and Section 80EEA later in this blog

Pre-Construction Property

case1: In case, you choose Old Regime

You can only claim Tax deduction once you acquired your house, you cannot claim any tax deduction till you moved in. You can claim previous years interests in 5 installments for next 5 years,  House must be constructed with 5 years of loan sanctioned, 

If 5 years is exceed, you will only be able to claim 30,000 maximum deduction limit for financial year

Example:

Let us take the previous example: You bought a house that is under construction, and the house was built within 3 years and you moved in. Once you moved in, it becomes self occupied Property

You will not be able to claim Repayment of Interest during the first 3 years. Let's say you are paying an EMI of 40,000 towards Interest. During the Pre-Construction phase, you will only be paying interest. So, your interest for the first 3 years is 3 * 40,000 = 1.2L. This amount can be claimed in 5 equal installments for the next 5 years.

This 1.2L divided by 5 = 24,000. You can claim 24,000 each year for the next 5 years.

Let's say in the 4th year, your EMI per month is 40,000 (10,000 Principal Repayment and 30,000 Interest Repayment). Now your Principal Repayment for the year is 10,000 * 12 = 1.2L, and Interest Repayment will be 30,000 * 12 = 3.6L.

Now, under Section 80C, you can claim 1.2L.

But Under Section 24B, you can claim only up to 2L (Interest 3.6L+ 24,000 (Pre-Construction Period Interest)). 

If there is a case, where you are paying interest of 1L per year, and your pre-construction period 1/5 annual interest is 24000, In this case you can claim 1.24L (1L interest +(Pre-Construction Period Interest)  )

Note: Section 24B has no upper limit if house is in let out property post construction.

case2: In case, you choose New Regime

You cannot claim Pre-Construction Period interest

Let Out Property

case1: In case, you choose Old Regime

You will have standard deduction of 30% Rental Income received

Also Set-Off loss can occur only if Interest Paid is higher than Rent received, Set off= Rent Received - Interest Paid

In this case, you will be able to claim tax deduction for Repayment of Principal up to 1,50,000 under Section 80C

You can claim Repayment of Interest under Section 24B with no upper limit

let us take previous example we used for Self Occupied Property

Example 1 with Setoff Loss:

Let us say, you are earning 20LPA (20L). Your monthly salary is 1.40L. Out of that, your monthly EMI is 40,000 (5,000 Principal Repayment and 35,000 Interest Repayment). Now your Principal Repayment for the year is: 5,000 * 12 = 60,000 (0.6L), and Interest Repayment will be: 35,000 * 12 = 4.2L.

Since you are also giving the property for rent, it will be counted as one of your income heads. Let’s say you have given it on rent for 20,000 per month, which totals 2.4L per year. Here, you will have a standard deduction of 30%, so: 2.4L - 30% (0.72L) = 1.7L. This is considered your rental income.

You will be able to claim 0.6L under Section 80C, and under Section 24B, since you are getting rent, the claim amount is 2L, and the remaining 0.5L loss can be carried forward to the next year.

You need to understand the term "set-off loss" here. It is calculated as: Rental Income - Interest Paid = 1.7L - 4.2L = -2.5L. In case of a negative value, the maximum limit is 2L, and the remaining loss of 0.5L can be carried forward to the next year. Losses can be carried forward for up to 8 years.

Therefore, your taxable income will be calculated as: 20L + (1.7L - 4.2L) - 0.6L. Now, your tax income would be: 20L - 2L - 0.6L = 17.4L (your taxable income).

Set-Off loses, As seen in above example, Net Rental Income-Interest paid is set off loss, these can be carry forward for next 8 years

Set Off loss can be under any other income head in case of old regime, like this loss for a limit of 2 lakhs can be set off with other income head like salary

Consider when there is no set-off loss

Example 2 with No Setoff Loss:

Let us say, you are earning 20LPA (20L). Your monthly salary is 1.40L. Out of that, your monthly EMI is 40,000 (5,000 Principal Repayment and 35,000 Interest Repayment). Now your Principal Repayment for the year is: 5,000 * 12 = 60,000 (0.6L), and Interest Repayment will be: 35,000 * 12 = 4.2L.

Let us assume you receive 6L as rent. Since there is no loss, the rent is considered as part of your income.

You will be able to claim 0.6L under Section 80C, and under Section 24B, since you are receiving rent, the claim amount is 4.2L.

Therefore, your taxable income will be calculated as: 20L + 6L (rent) - 4.2L - 0.6L. Now, your taxable income would be: 21.2L.

case2: In case, you choose New Regime

It does not allow Section 80C but it allows Section24B

But you cannot carry your set-off loss to other head of income like salary , it can be carried only to income on house property further for next 8years 

Example 1 with Setoff Loss:

Let us say, you are earning 20LPA (20L). Your monthly salary is 1.40L. Out of that, your monthly EMI is 40,000 (5,000 Principal Repayment and 35,000 Interest Repayment). Now your Principal Repayment for the year is: 5,000 * 12 = 60,000 (0.6L), and Interest Repayment will be: 35,000 * 12 = 4.2L.

Since you are under the new regime, you cannot claim Principal Repayment. However, you can claim deductions under Section 24B. Let us assume you have given rent for 20,000, so the total rent for the year is 2.4L. Here, you will have a standard deduction of 30%: 2.4L - 0.72L = 1.7L. This is considered your rental income.

Understanding the term Set off loss: Rental Income - Interest Paid = 1.7L - 4.2L = -2.5L. In this case, your loss of 2.5L will be carried forward to the next year. It cannot be adjusted to other heads of income and can only be offset against house property income.

Therefore, your taxable income will be: 20L + 1.7L (rent) - 4.2L (interest paid) = 17.5L.

Example 2 with No Setoff Loss:

Let us say, you are earning 20LPA (20L). Your monthly salary is 1.40L. Out of that, your monthly EMI is 40,000 (5,000 Principal Repayment and 35,000 Interest Repayment). Now your Principal Repayment for the year is: 5,000 * 12 = 60,000 (0.6L), and Interest Repayment will be: 35,000 * 12 = 4.2L.

Since you are under the new regime, you cannot claim Principal Repayment. However, you can claim deductions under Section 24B.

Let us assume you get a rent of 6L. After a standard deduction of 30%, the rental income is: 6L - 1.8L = 4.2L.

Understanding the term Set-off loss: Rental Income - Interest Paid = 4.2L - 4.2L = 0. In this case, there is no loss to carry forward.

Therefore, your taxable income will be: 20L + 4.2L (rent) - 4.2L (interest paid) = 20L.

Summary: 

Property Type	Old Regime	New Regime
Self-Occupied Property	- Claim Principal Repayment (up to ₹1.5L) under Section 80C - Claim Interest Repayment (up to ₹2L) under Section 24B - Taxes on Principal Repayment imposed if sold within 5 years	- No Section 80C or 24B claims - Taxed at the applicable slab rate
Pre-Construction Property	- Interest during construction not deductible - Can claim interest in 5 equal installments after construction	- No claim for pre-construction interest
Let-Out Property	- Standard deduction of 30% on rental income - Claim Principal Repayment (up to ₹1.5L) under Section 80C - Claim Interest Repayment under Section 24B (no upper limit) - Set-Off loss can occur if interest paid exceeds rental income	- No Principal Repayment under Section 80C - Claim Interest Repayment under Section 24B - Set-Off loss can only be carried forward to next year against house property income

Co-Ownership:

Co-Ownership simply means that there is another owner for the same property, generally, it works on ratio you hold in ownership of Property and  loan in ratios like 50% to first owner , 50% to second owner, Ratios might vary depending on agreement between owners

Case 1: Let's say the total interest paid on the loan is 3L, and it is in the ratio of 50:50. This means, in this case, you can claim 1.5L and your partner can claim 1.5L.

Case 2: Let's say the total interest paid on the loan is 6L, and in a ratio of 50:50. Here, you will be paying 3L as interest and your partner will pay 3L as interest. If it's a self-occupied property, you can claim 2L (section 24B limit) and your partner can claim 2L.

Section 80EE:

Additional deduction of 50,000 is allowed for home buyers under following conditions

• Owner must not have any other house during time of loan
• Amount of loan must not exceed 35 lakh and Property value must be less than 50lakh
• Loan must be sanctioned between 1st April 2016 to 31st March 2017

Section 80EEA:

Additional Deduction of 1.5L is allowed for home buyers under following conditions

• Owner must not have any other house during time of loan
• Stamp Value duty must not exceed 45Lakh
• Owners claimed deduction under section 80EE are not eligible for deduction
• Loan must be sanctioned between 1st April 2019 to 31st March 2022

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