Home loan on a rented house? Here's what you can still claim under new tax regime
As taxpayers file their ITRs, understanding home loan tax rules has become more important than ever. In this edition of 'KNOW YOUR TAX', we explain what you can still claim on a rented property under the new tax regime.
If you own a house that you have rented out and are still repaying a home loan, chances are you've wondered whether the new tax regime has changed the tax benefits available on your loan. The good news is that the deduction continues, although the new regime treats it differently in certain situations.
The good news is that taxpayers can still claim the entire interest paid on a home loan for a let-out property. However, while the deduction remains available, the way losses are treated under the new tax regime is different from the old one. That distinction could have a direct impact on your tax bill.
FULL INTEREST DEDUCTION CONTINUES FOR LET-OUT PROPERTIES
The Income-tax Act, 2025 has not taken away the deduction on home loan interest for rented properties. Tax experts say the method of calculating income from a let-out property remains largely unchanged.
Taxpayers can continue to deduct municipal taxes paid, claim the standard deduction of 30% on the Net Annual Value and deduct the entire interest paid on the home loan while computing income from house property.
"Taxpayers can claim home loan interest deductions on let-out properties under Section 24(b) under both the regimes," said Anita Basrur, Partner, Direct Taxation, Sudit K. Parekh.
Sharing a similar view, Chakravarthy V., Cofounder & Executive Director, Prime Wealth Finserv Pvt. Ltd., said the Income-tax Act, 2025 has retained the existing provisions relating to let-out properties.
"The Income-tax Act, 2025 continues to allow taxpayers to claim the full amount of interest paid on a home loan for a let-out property, with no upper monetary limit. Taxpayers can continue to deduct municipal taxes, claim the 30% standard deduction and deduct the entire home loan interest without any monetary cap," he said.
WHERE THE NEW REGIME DIFFERS
Although the deduction itself remains intact, the treatment of losses is where the old and new tax regimes differ.
Suppose the interest paid on your home loan, along with other eligible deductions, is more than the rental income earned during the year. In such a case, a loss arises under the head 'Income from House Property'.
Under the old tax regime, taxpayers could adjust this loss, up to 2 lakh, against income from salary, business or other sources during the same financial year. This often resulted in lower taxable income and immediate tax savings.
The new tax regime, however, does not permit such cross-head adjustment.
Explaining the difference, Basrur said, "While the home loan interest from the rental income is allowed, if the interest and standard deductions exceed the rental income, the loss cannot be set off against any other income heads. Under the new regime, the tax utility of the interest is locked against the rental income."
Chakravarthy V. also pointed out that the biggest change under the new regime relates to the treatment of losses rather than the deduction itself.
"Where the home loan interest and other deductions exceed the rental income, the resulting loss can no longer be set off against salary, business income or income from any other head in the same financial year," he said.
NO CHANGE IN THE WAY RENTAL INCOME IS CALCULATED
According to tax experts, taxpayers often assume that the new Income-tax Act, 2025 has rewritten the rules for rented properties. That is not the case.
The law has largely retained the existing framework while simplifying the language and reorganising the provisions. The calculation of rental income continues to follow the same broad principles, including deductions for municipal taxes, the standard deduction and home loan interest.
As Basrur explained, "The structural provisions governing the calculation of rental income and deductions remain similar for let-out properties. The important change under the new regime is the restriction on spillover losses."
SELF-OCCUPIED AND LET-OUT HOMES ARE TAXED DIFFERENTLY
The rules are also different depending on whether the property is self-occupied or rented out.
For a self-occupied property, the new tax regime does not allow a deduction for home loan interest. Under the old regime, taxpayers could claim a deduction of up to 2 lakh, subject to conditions.
For a let-out property, however, the full home loan interest continues to be deductible under both tax regimes. The key difference lies in how any resulting loss is treated.
MISTAKES TAXPAYERS SHOULD AVOID
Tax professionals say many taxpayers make errors while claiming deductions on rented properties, especially after switching to the new tax regime.
One common mistake is claiming the principal repayment as a deduction even though Section 80C benefits are not available under the new regime. Another frequent error is claiming the entire interest deduction in the hands of one co-owner despite the property being jointly owned. In such cases, the income and interest should generally be divided according to legal ownership.
Taxpayers also tend to overlook pre-construction interest on under-construction properties. This amount can be claimed in five equal instalments beginning from the financial year in which construction is completed.
KEEP THE RIGHT DOCUMENTS READY
Experts advise taxpayers to keep all supporting documents before filing their Income Tax Return. These include the home loan interest certificate issued by the lender, the signed lease agreement, municipal tax payment receipts and the possession letter or completion certificate wherever applicable.
These records help establish the correctness of the deductions claimed and may be required if the tax department seeks further clarification.
WHICH TAX REGIME SHOULD YOU CHOOSE?
The answer depends on your overall financial situation rather than just your home loan.
If you have a large home loan, substantial interest payments and claim several deductions such as EPF, PPF, health insurance, life insurance and HRA, the old tax regime may still offer greater tax savings.
Basrur says taxpayers should compare the total deductions available under the old regime before making a decision.
"If annual interest payment is significantly higher than gross rental income, the old regime is highly beneficial because it transforms that deficit into a Rs 2 lakh direct deduction against your salary. Taxpayers should also consider their tax bracket and the value of other eligible deductions before choosing a regime," she said.
For owners of let-out properties, the home loan interest deduction remains available even under the new tax regime. The real difference lies not in whether the deduction can be claimed, but in how the resulting tax loss is treated. That is why calculating your tax liability under both regimes before filing your return can help you make a more informed choice.
If you own a house that you have rented out and are still repaying a home loan, chances are you've wondered whether the new tax regime has changed the tax benefits available on your loan. The good news is that the deduction continues, although the new regime treats it differently in certain situations.
The good news is that taxpayers can still claim the entire interest paid on a home loan for a let-out property. However, while the deduction remains available, the way losses are treated under the new tax regime is different from the old one. That distinction could have a direct impact on your tax bill.
FULL INTEREST DEDUCTION CONTINUES FOR LET-OUT PROPERTIES
The Income-tax Act, 2025 has not taken away the deduction on home loan interest for rented properties. Tax experts say the method of calculating income from a let-out property remains largely unchanged.
Taxpayers can continue to deduct municipal taxes paid, claim the standard deduction of 30% on the Net Annual Value and deduct the entire interest paid on the home loan while computing income from house property.
"Taxpayers can claim home loan interest deductions on let-out properties under Section 24(b) under both the regimes," said Anita Basrur, Partner, Direct Taxation, Sudit K. Parekh.
Sharing a similar view, Chakravarthy V., Cofounder & Executive Director, Prime Wealth Finserv Pvt. Ltd., said the Income-tax Act, 2025 has retained the existing provisions relating to let-out properties.
"The Income-tax Act, 2025 continues to allow taxpayers to claim the full amount of interest paid on a home loan for a let-out property, with no upper monetary limit. Taxpayers can continue to deduct municipal taxes, claim the 30% standard deduction and deduct the entire home loan interest without any monetary cap," he said.
WHERE THE NEW REGIME DIFFERS
Although the deduction itself remains intact, the treatment of losses is where the old and new tax regimes differ.
Suppose the interest paid on your home loan, along with other eligible deductions, is more than the rental income earned during the year. In such a case, a loss arises under the head 'Income from House Property'.
Under the old tax regime, taxpayers could adjust this loss, up to 2 lakh, against income from salary, business or other sources during the same financial year. This often resulted in lower taxable income and immediate tax savings.
The new tax regime, however, does not permit such cross-head adjustment.
Explaining the difference, Basrur said, "While the home loan interest from the rental income is allowed, if the interest and standard deductions exceed the rental income, the loss cannot be set off against any other income heads. Under the new regime, the tax utility of the interest is locked against the rental income."
Chakravarthy V. also pointed out that the biggest change under the new regime relates to the treatment of losses rather than the deduction itself.
"Where the home loan interest and other deductions exceed the rental income, the resulting loss can no longer be set off against salary, business income or income from any other head in the same financial year," he said.
NO CHANGE IN THE WAY RENTAL INCOME IS CALCULATED
According to tax experts, taxpayers often assume that the new Income-tax Act, 2025 has rewritten the rules for rented properties. That is not the case.
The law has largely retained the existing framework while simplifying the language and reorganising the provisions. The calculation of rental income continues to follow the same broad principles, including deductions for municipal taxes, the standard deduction and home loan interest.
As Basrur explained, "The structural provisions governing the calculation of rental income and deductions remain similar for let-out properties. The important change under the new regime is the restriction on spillover losses."
SELF-OCCUPIED AND LET-OUT HOMES ARE TAXED DIFFERENTLY
The rules are also different depending on whether the property is self-occupied or rented out.
For a self-occupied property, the new tax regime does not allow a deduction for home loan interest. Under the old regime, taxpayers could claim a deduction of up to 2 lakh, subject to conditions.
For a let-out property, however, the full home loan interest continues to be deductible under both tax regimes. The key difference lies in how any resulting loss is treated.
MISTAKES TAXPAYERS SHOULD AVOID
Tax professionals say many taxpayers make errors while claiming deductions on rented properties, especially after switching to the new tax regime.
One common mistake is claiming the principal repayment as a deduction even though Section 80C benefits are not available under the new regime. Another frequent error is claiming the entire interest deduction in the hands of one co-owner despite the property being jointly owned. In such cases, the income and interest should generally be divided according to legal ownership.
Taxpayers also tend to overlook pre-construction interest on under-construction properties. This amount can be claimed in five equal instalments beginning from the financial year in which construction is completed.
KEEP THE RIGHT DOCUMENTS READY
Experts advise taxpayers to keep all supporting documents before filing their Income Tax Return. These include the home loan interest certificate issued by the lender, the signed lease agreement, municipal tax payment receipts and the possession letter or completion certificate wherever applicable.
These records help establish the correctness of the deductions claimed and may be required if the tax department seeks further clarification.
WHICH TAX REGIME SHOULD YOU CHOOSE?
The answer depends on your overall financial situation rather than just your home loan.
If you have a large home loan, substantial interest payments and claim several deductions such as EPF, PPF, health insurance, life insurance and HRA, the old tax regime may still offer greater tax savings.
Basrur says taxpayers should compare the total deductions available under the old regime before making a decision.
"If annual interest payment is significantly higher than gross rental income, the old regime is highly beneficial because it transforms that deficit into a Rs 2 lakh direct deduction against your salary. Taxpayers should also consider their tax bracket and the value of other eligible deductions before choosing a regime," she said.
For owners of let-out properties, the home loan interest deduction remains available even under the new tax regime. The real difference lies not in whether the deduction can be claimed, but in how the resulting tax loss is treated. That is why calculating your tax liability under both regimes before filing your return can help you make a more informed choice.
