The revamped tax rules still allow a full interest deduction for home loans on let‑out properties, but they change how losses are set‑off. This article breaks down the key provisions and common pitfalls for taxpayers.

Key Takeaways (मुख्य बिंदु)

  • Full interest on home loans for let‑out houses remains deductible
  • Losses cannot be set‑off against other income under the new regime
  • Self‑occupied houses lose the interest deduction benefit

As the deadline for filing Income‑Tax Returns (ITR) approaches, understanding home‑loan tax benefits has become essential, especially when the property is let out and the loan is still being serviced. The Income‑Tax Act, 2025 introduces subtle but impactful changes that every taxpayer should grasp.

Basic Deduction Rule for Let‑Out Properties

Both the old and new tax regimes retain the provision under Section 24(b) that allows a taxpayer to deduct the entire interest paid on a home loan for a rented house, with no monetary ceiling. In addition to interest, the landlord can claim municipal taxes, a standard deduction of 30% on the Net Annual Value (NAV), and other eligible expenses while computing income from house property.

How the New Regime Alters Loss Treatment

The pivotal difference lies in the handling of a loss when the sum of interest, standard deduction, and other allowances exceeds the rental income. Under the previous regime, a loss up to ₹2 lakh could be adjusted against salary, business, or other heads of income in the same financial year, delivering immediate tax relief. The new regime, however, disallows any cross‑head set‑off; the loss remains confined to the ‘Income from House Property’ head and can be carried forward to subsequent years.

Self‑Occupied vs. Let‑Out: Divergent Benefits

For a self‑occupied property, the new tax regime removes the home‑loan interest deduction altogether, whereas the old regime permitted a deduction up to ₹2 lakh (subject to conditions). Conversely, for let‑out properties the full interest deduction survives, but the loss‑set‑off restriction becomes the critical factor for tax planning.

Common Mistakes to Avoid

Tax professionals highlight two frequent errors after the regime shift: (i) claiming the principal repayment as a deduction, even though Section 80C is not available under the new regime; and (ii) allocating the entire interest deduction to a single co‑owner when the property is jointly owned. Both mistakes can trigger additional tax liability and possible penalties.

In summary, while the core benefit of interest deduction for rented houses endures, the new regime’s limitation on loss set‑off demands careful cash‑flow analysis and precise documentation. Consulting a tax advisor is advisable to optimise deductions and avoid costly errors.