The FM Nirmala Sitharaman in her budget presentation made on February 1, 2020 provided for a lower tax rate structure that may or may not be opted to as per the discretion of taxpayers even every other year but herein individuals will have to forego as many as 70 deductions and exemptions that were available in the current taxation regime.
Read about list of deductions and exemption done away with in the new tax regime. But here we list out one such sop which the ministry has kept intact for its taxpayers to benefit from.
Here are the details on it:
The deductions and exemptions allowed help to lessen one's total tax liability by either reducing the amount towards a certain item from the gross taxable income to arrive at lower gross taxable income or as in the case of exemptions few of the income stream do not attract any taxation implications.
Section 24: Under this section, deduction is provided in respect of interest paid on home loan of a self-occupied property but the same is not extended in the new regime. Nonetheless, if the interest payment is being made towards home loan of a property that is rented out, the same can be claimed as deduction under 24(b) to lessen your overall tax outgo.
Also, in the existing tax regime the deduction on interest paid on going home loan for a self-occupied property is allowed to the extent of Rs.2 lakh.
So, here in are given probably all the aspects related to deduction offered under Section 24(b) in the new tax regime that one should note of:.
1. Thus in case of a house property which is rented out or deemed to be rented:
Taxpayer who happens to be landlord and have rented out a house property can claim the deduction in respect of the interest paid on its loan from the net rental income. So, here in again this sop continues in the Budget 2020 which can still be claimed for reducing your next taxable income in the financial year 2020-21.
- 30% standard deduction from net rentals on let-out property: In the said case, an individual taxpayer can claim standard deduction to the tune of 30% from net rental income that includes expected rent or rent received or receivable, whichever is higher minus municipal taxes paid in lieu of the property in a fiscal year.
- Reduced taxable income from house property: Here after reducing the standard deduction provided and the interest paid on let-out property home loan, one's income from house property will reduce thus lowering the overall gross taxable income and hence resulting in lower tax out go for taxpayer.
Points to remember when claiming deduction under Section 24(b) under the new tax regime:
Rules for you to understand if you make losses in the rent out property:
On an overall basis, while this deduction extended even in the new tax regime goes out in the interest of landlords, the problem area arises when the taxpayer incurs loss on such a property i.e. his income from the property i.e. rent is less than the interest pay-out against the loan taken on it.
So, here are given 2 rules under the new tax regime governing the section to look out for:
1. No set off of losses incurred on rented house property allowed: In the existing tax regime, while there is allowed set off of losses from rented out house property against some income stream up to Rs. 2 lakh, the same is disallowed under the new regime i.e. the landlord in a case when he pays more interest on housing loan than the rental income received in a financial year, then he cannot set-off this loss against any other income head including interest, capital gain, salary etc. So,taxable income of the individual cannot be reduced further.
2. Carry forward of losses: This provision needs clarification still as there are different proposals made on it i.e. in the Finance Bill, 2020 and Memorandum to the Finance Bill, 2020. In the prior one, it is listed that no carry forward of losses incurred on let out house property will be allowed to subsequent years which is most likely to be the case.
Let out property hence offers standard deduction and deduction on interest paid against loan taken from net rental income also in the new tax regime
So, finally if you have a let out property with home loan on it, you can claim deduction on the interest paid on home loan as well as standard deduction from the net rental income. Precisely the older regime, providing for carry forward off and set-off of loss, in case the individual makes loss on it, will be more be beneficial. So, basis your own income and other aspects you need to determine your tax liability on house property that is let out under both the regimes and go for the option which indeed gives you a higher tax break.