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If you own a house that is rented out, you can still claim certain tax benefits under the new tax regime in India. However, compared to the old system, the scope of deductions is more limited. Understanding these rules carefully can help you reduce your tax liability while staying compliant.

Key Tax Benefits on Rental Income

Under the new tax regime, income from house property continues to offer two major deductions:

Standard Deduction (30%)
You can claim a flat 30% deduction on the Net Annual Value (NAV) of your rental income. This deduction is allowed irrespective of your actual expenses on maintenance or repairs.

Home Loan Interest Deduction
If you have taken a loan to purchase the rented property, the interest paid on that loan can still be deducted from your rental income. This benefit remains available even in the new regime.

These deductions ensure that your taxable rental income is significantly reduced before tax is calculated.

The Big Limitation in the New Tax Regime

The most important change comes in how losses are treated.

In the old tax system, if your home loan interest exceeded your rental income, you could set off the loss against your salary or other income sources, thereby reducing your overall tax burden.

However, under the new regime:

• Loss from house property cannot be adjusted against other income heads
• Such losses can only be carried forward and adjusted against future income from house property

This restriction reduces the overall tax-saving potential for many homeowners.

Why This Matters for Property Owners

In many Indian cities, rental yields are relatively low compared to home loan interest costs. This often leads to a situation where the interest paid is higher than the rental income, resulting in a notional loss.

Earlier, this loss could be used to reduce taxable salary income. Now, that benefit is restricted—making the new regime less attractive for heavily leveraged property investors.

Common Tax Practices Under Scrutiny

With tighter rules and increased monitoring, certain practices are now under closer watch:

• Artificially increasing loan interest through refinancing to reduce taxable income
• Showing self-occupied property as rented to claim deductions
• Underreporting rental income, especially cash transactions
• Misclassifying rental income as business income to claim higher expenses

Authorities are now using advanced tools like Annual Information Statement (AIS), TDS tracking, and data analytics to detect discrepancies and ensure compliance.

Self-Occupied Property: No Interest Benefit

Another key change is that for self-occupied properties, the interest deduction benefit is not available under the new tax regime. This has led some taxpayers to attempt showing such properties as rented—but doing so without actual rental activity can invite scrutiny.

What Has Changed Overall?

The new tax regime aims to simplify taxation while reducing dependency on deductions. As a result, many traditional tax-saving strategies have been curtailed.

The government has also strengthened monitoring mechanisms through:

• Data analytics
• Transaction tracking
• Cross-verification of financial records

This means taxpayers must be more transparent and accurate in reporting income.

Final Takeaway

While tax benefits on rental income still exist under the new regime, they come with clear limitations. The 30% standard deduction and home loan interest relief remain valuable, but restrictions on loss adjustment reduce overall savings.

If you own a rental property, it’s important to evaluate whether the new tax regime suits your financial situation. Careful planning, accurate reporting, and understanding the updated rules can help you optimize your tax liability without risking compliance issues.

Disclaimer

This article is for informational purposes only. Tax laws are subject to change, and individual circumstances may vary. It is advisable to consult a tax expert before making financial decisions.