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Personal Finance News

Home loan interest deduction under the New Tax Regime is on ICAI’s Budget 2025 wishlist; here’s why

rajeev kumar
By Rajeev Kumar

3 min read | Updated on January 10, 2025, 11:25 IST

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SUMMARY

Most salaried individuals purchase their homes through loans. The interest paid on these loans is generally higher than the rental income, resulting in a net loss from house property. Not allowing interest deduction for self-occupied property has adversely affected salaried persons who have borrowed money to acquire a house, ICAI says.

home home interest deduction under new tax regime in budget 2025

The new tax regime provides some concessions in the case of let-out property. Representational image

While the New Tax Regime has become the default regime for filing taxes, many salaried taxpayers are still relying on the old regime. The reason? The new regime has removed several deductions that they can claim to reduce their total tax outgo.

One such deduction that is stopping many taxpayers from switching to the new tax regime is related to home loan interest.

A salaried employee opting for the old regime can claim a deduction of home loan interest up to ₹2 lakh for self-occupied property. However, this deduction is not allowed under the new tax regime.

The new tax regime provides some concessions in the case of let-out property. For instance, there is no restriction on home loan interest deduction from the taxable rental income under section 24 of the Income-tax Act. However, interest is generally higher than rental income, which results in a loss to the property owner. But this loss cannot be set off against income from any other head nor can it be carried forward under the new tax regime.

In contrast, the old tax regime allows setting-off loss of up to ₹2 lakh from house property against income from any other head of income in a year. Additionally, the losses from house property that aren't yet offset can be carried forward for set-off against income from house property for up to eight subsequent assessment years.
As Budget 2025 approaches, homebuyers are expecting that the government would allow home loan interest deduction in the new tax regime also. The Institute of Chartered Accountants of India (ICAI) has also highlighted this issue in its pre-budget memorandum to the government.

Why is this issue important?

Most salaried individuals purchase their homes through loans from banks and housing finance companies. The interest paid on these loans is generally higher than the rental income, resulting in a net loss from house property.

The ICAI said that not allowing interest deduction for self-occupied property has adversely affected salaried persons who have borrowed money to acquire a house.

"Also, for let-out property, even though there is no restriction on interest deduction u/s 24, loss under the head 'income from house property' cannot be set-off against income under any other head; nor can it be carried forward to the next year for set-off against income, if any, from house property," it added.

What ICAI recommends

ICAI has submitted three recommendations regarding the taxation of income from house property under the new tax regime.

First, the ICAI has recommended the government to permit interest deduction up to ₹2 lakh under the new tax regime.

Second, the ICAI has said that set-off of loss from house property against income under other heads should also be allowed.

Third, in case there is no income under any other head, then the loss should be allowed to be carried forward for set-off against income from house property for eight subsequent assessment years, the ICAI said.

About The Author

rajeev kumar
Rajeev Kumar is a Deputy Editor at Upstox, and covers personal finance stories. In over 11 years as a journalist, he has written over 2,000 articles on topics like income tax, mutual funds, credit cards, insurance, investing, savings, and pension. He has previously worked with organisations like 1% Club, The Financial Express, Zee Business and Hindustan Times. When he's not at work, Rajeev likes to talk to people about their personal finance journeys and answer their queries.

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