Home Loan Tax Benefits: Self-Occupied vs. Let-Out Under Old and New Regimes

Tax laws do not cap the number of home loans for which individuals can claim deductions, whether simultaneously or after repaying an earlier loan. For a second property, the tax benefits hinge significantly on whether the house is self-occupied or let out, and the chosen tax regime.

Old Tax Regime Advantages

Under the traditional tax structure, homeowners can claim a higher benefit on interest paid for let-out properties. The entire home loan interest is deductible, and a 30 percent standard deduction is applicable on the rental income. For self-occupied homes, however, the interest deduction is capped at ₹2 lakh for a combined total across up to two such properties. Any resulting house property loss can be set off against other income, capped at ₹2 lakh annually, with the remaining balance eligible for carry-forward for eight years.

New Tax Regime Limitations

The newer tax regime introduces stricter conditions, particularly for self-occupied properties. No deduction on home loan interest is allowed for a property where the owner resides. If the property is rented out, interest can only be claimed up to the amount of taxable rental income, limited to approximately 70 percent of the rent received. Importantly, under the new regime, losses from house property cannot be set off against any other income sources.

Principal Repayment Benefits

For both tax regimes, principal repayment on home loans qualifies for deduction under Section 80C. However, this benefit is strictly available only if taxpayers opt for the old tax regime. The deduction is subject to the overall Section 80C limit of ₹1.5 lakh, which includes other eligible investments and expenses.