Effects Of the New Tax Regime on Home Buyers In FY23-24

Effects Of the New Tax Regime on Home Buyers In FY23-24

FPJ Web DeskUpdated: Monday, March 13, 2023, 06:23 PM IST
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Talking about both – the old tax regime and the new tax regime – the former is better in terms of tax deductions while the latter can help homebuyers pay less tax and enjoy more money at hand. 

The Finance Minister of India recently presented the Union Budget FY24 in the beginning of February 2023. For the middle-class and salaried individuals, the new tax regime can prove to be beneficial as it pushes the tax slabs ahead and provides more scope for tax savings. Also, with the addition of standard deduction, individuals can enjoy the benefits of the old regime while opting for the new one. For homebuyers, there is no deduction to take advantage of and the old regime still remains to be a money saviour for them. Read more to know whether you can enjoy any tax benefits on Home Loan on the New Regime, or you should stick with the old one. 

Which Deductions from The Old Tax Regime are Particularly Beneficial To Homebuyers?

There are several home loan tax benefits an individual can enjoy using the provisions made by the government in the old tax regime. Many of these benefits however are not available in the new one. These provisions greatly help the borrowers to deduct from their tax. Here is a look at them.

  1. Home Loan Tax Benefits under Section 80C – Deduction on Principal Amount

You can claim a maximum of Rs.1.5 Lakh on the principal amount in a financial year for properties that are let-out or self-occupied. To claim this deduction, however, the property in question should not be sold within 5 years of possession. Having done so, you will lose your deduction claimed earlier and it will be added again to your income in the year of sale. Note that you can include the stamp duty and registration charges to the principal amount in the first year of claiming the deduction. Another clause here is that the property should not be under construction and should be complete during the time of claiming deduction. 

  1. Home Loan Tax Benefits under Section 80EE – Deduction on Interest Amount

This section provides an additional deduction of (maximum) Rs.50,000 to the homebuyers over and above Section 80C. There are certain conditions that need to be met to qualify for section 80EE:

  1. The principal loan amount should be Rs.35 Lakh or less

  2. The property value should be Rs.50 Lakh or less

  3. The loan must be sanctioned between 1st April 2016 and 31st March 2017

  4. On the date of loan sanction, the individual should not be owning any other house and should be a first-time home buyer

    3. Home Loan Tax Benefits under Section 80EEA – Deduction on Interest Amount

Since Section 80EE was valid only for those who availed loan within the period of 1st April 2016 and 31st March 2017, section 80EEA was introduced as a compensation for those who fall beyond this duration. In fact, the maximum deduction under this section is Rs.1.5 Lakh which is 3 times that of section 80EE. However, there are other criteria that vary too:

  1. The property stamp value should be Rs.45 Lakh or less

  2. The loan must have been sanctioned between 1st April 2019 to 31st March 2022 

  3. On the date of loan sanction, the individual should not be owning any other house and should be a first-time home buyer

  4. The individual should not be eligible to claim deduction under Section 80EE

  1. Home Loan Tax Benefits under Section 24B – Deduction on Interest Amount

An individual can claim a maximum deduction of Rs. 2 lakh on the interest paid on  a home loan. It is applicable to both rented and self-occupied properties. However, the maximum deduction drops to Rs. 30,000 under the following circumstances:

  1. If the loan was borrowed before 1st April 1999 to buy or construct a new housing property

  2. If the loan was borrowed on or after 1st April 1999 to repair or renovate an existing house

  3. If the loan was borrowed on or after 1st April 1999 and the house was not fully constructed within the first 5 years of availing the loan

This deduction can be claimed along with Section 80EEA to enjoy an overall maximum deduction of Rs.3.5 Lakh.

New Tax Regime – Good for Saving Taxes and Spending More, but Bad For Deductions 

The government has tried to make the new tax regime attractive for salaried individuals by increasing the limit of non-taxable income. But leaving that aside, this is good only for those who are not planning to invest in a property and avail a home loan for the same. The new tax regime does not offer any kind of deductions or exemptions for home loans as of now.

It is clear from the above that the new regime is no match to the old regime from the perspective of tax savings. There are no benefits given under section 24B which lets home buyers deduct the interest payment up to Rs.2 Lakh from their Home Loan which is a substantial amount. Additionally, deductions under Section 80C and 80EEA are also missing which allow a deduction of Rs.1.5 Lakh on Principal and Interest amount respectively. The USP of the new tax regime is its simplicity and the ability to leave taxpayers with more disposable income – thereby promoting liquidity and buying. It might work well for the adopters of a relatively modern idea which believes in investing in other avenues that can be liquidated quickly rather than being tied up by the long running commitment of Home Loans.

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