The Union Budget for 2023–24 was balanced across all sectors, but from the perspective of taxation, it incentivized individual taxpayers to choose the new tax regime by offering a higher tax rebate threshold than the old regime allowing them to claim higher deductions from various sources of income.
Ankit Aggarwal, MD, Devika Group said for homebuyers, the old tax system offers more deductions for interest and principal payments on home loans when compared to the new tax system.
New tax regime will not allow homebuyers to claim deductions
However, when it comes to taxation, modifications of the new tax regime will not allow homebuyers to claim deductions that they can avail under the old tax regime, said Anurag Goel, Director, Goel Ganga Group
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The Income Tax Act of 1961 provides various provisions for a tax rebate on home loans, such as tax deductions on principal repayment of home loans of up to Rs.1.5 lakh under Section 80C, tax deductions on interest payments for a home loan of up to Rs.2 lakh under Section 24, and deductions under Section 80EEA in case of affordable housing if you are a first-time property buyer, and Section 80EEA also allows taxpayers to claim an additional deduction of up to Rs.1.5 lakh annually.
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New tax regime vs old tax regime: What should homebuyers opt for?
Suren Goyal, Partner, RPS Group said that all of these deductions fall under the old tax regime, thus the new tax regime will not advantage home buyers in terms of lowering the tax burden on their home loan.
According to Siddharth Maurya, Resource Specialist, Fund Management, those who choose the new tax regime will have to forfeit the potential for deductions under Sections 80C, 24(b), and 80EEA in consideration for a lower tax rate and a streamlined tax structure, such as new tax slabs of five, tax exemption limits of ₹3 lakh, and tax rebate limits of ₹7 lakh.
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FM Sitharaman provided significant relief to all taxpayers in the new regime, but home loan borrowers should be aware that if they are in the higher tax bracket, they can effectively save tax by opting for the old tax regime.
