Tax regimes have a significant impact on the financial aspects of an individual’s life. In India, the introduction of the new tax regime in 2020 has brought about a lot of changes, particularly in terms of tax benefits. For taxpayers who have availed a housing loan, understanding the difference between the old tax regime and the new tax regime is critical as it affects the home loan interest deduction.
The old tax regime allowed taxpayers to claim a tax deduction on the principal repayment of the housing loan under Section 80C of the Income Tax Act, 1961. Additionally, taxpayers were allowed to claim a deduction on the interest paid on the housing loan under Section 24 of the same Act.
How to Avail Housing Loan According to Old Tax Regime
As per the old tax regime, individuals who have availed a housing loan could claim a deduction of up to Rs. 1.5 lakhs for the principal repayment and Rs. 2 lakhs for the interest payment. These deductions were adjusted against the taxable income, reducing the tax liability. The old tax regime had a higher tax liability, but it provided more significant housing loan tax benefits for individuals who have availed of a housing loan.
The new tax regime was introduced in the Union Budget 2020 and came into effect from 1st April 2020. Under the new tax regime, taxpayers are not entitled to claim deductions on the principal repayment of the housing loan under Section 80C. However, they are still allowed to claim a deduction on the interest paid on the housing loan under Section 24 of the Income Tax Act, 1961.
As per the new tax regime, individuals can claim a deduction of up to Rs. 2 lakhs on the interest payment made on a housing loan. However, this deduction is only available if the taxpayer has opted for the new tax regime and has not claimed any other deductions, such as the deduction for HRA (House Rent Allowance). Hence, the new tax regime has a lower tax liability, but the tax benefits on a housing loan are significantly reduced.
How to Determine the Housing Loan with Home Loan Calculator?
Apart from the above, individuals who have availed of a housing loan can use a housing loan EMI calculator to determine their monthly repayments. These calculators take into account the interest rate, loan amount, and tenure of the loan, providing the exact EMI amount. Individuals can use this information to plan their finances better and manage their loan repayments more efficiently.
Additionally, individuals who have availed of a housing loan can also claim tax benefits under Section 80EEA of the Income Tax Act, 1961. This section allows taxpayers to claim an additional deduction of up to Rs. 1.5 lakhs on the interest paid on the housing loan, provided the loan has been availed of between 1st April 2019 and 31st March 2021, and the value of the property is up to Rs. 45 lakhs. However, this deduction is not available under the new tax regime and can only be claimed by taxpayers who have opted for the old tax regime.
Thus, it is essential for taxpayers who have availed of a housing loan to understand the difference between the old tax regime and the new tax regime. While the new tax regime has a lower tax liability, it significantly reduces the tax benefits on a housing loan. However, taxpayers can still claim a deduction of up to Rs. 2 lakhs on the interest payment under Section 24 of the Income Tax Act, 1961. Additionally, taxpayers can also claim an additional deduction of up to Rs. 1.5 lakhs under Section 80EEA of the Act, provided they have opted for the old tax regime.
Conclusion
In conclusion, the new tax regime vs. the old tax regime has a significant impact on the tax benefits that individuals who have availed of a housing loan can claim. While the old tax regime allowed for a higher tax benefit, the new tax regime has a lower tax liability. Individuals must choose their tax regime wisely and plan their finances accordingly. With the help of housing loan EMI calculators, individuals can plan their finances better and make their loan repayments more manageable.