What is Section 24 in the New Tax Regime?

If you want to avail yourself of tax benefits on home loans, Section 24 of the Income Tax Act, 1961 is for you. It generally allows for claiming deductions on interest paid toward home loans. However, its applicability differs in the new tax regime compared to the old regime.

Key Takeaways

• Section 24 of the Income Tax Act addresses the deduction available on interest paid on housing loans, offering relief to taxpayers by reducing their taxable income.
• Taxpayers have the flexibility to choose between the old and new tax regimes, directly influencing the eligibility and deductions available under Section 24.
• Section 24 offers deductions for interest paid on self-occupied, let-out, or deemed let-out properties.
• Taxpayers can claim a deduction of up to ₹2 lakh on interest paid for self-occupied properties, irrespective of construction status.
• Taxpayers must maintain accurate documentation of home loan transactions to claim deductions effectively and avoid penalties or legal issues.

In the ever-evolving field of taxation, it is crucial to stay updated with the latest amendments and provisions. One such provision that has garnered attention in recent times is Section 24 in the new tax regime. To avail of the tax deduction from income from house property you have to understand the implications under Section 24 of the Income Tax Act.

Understanding Section 24 of the Income Tax Act

Section 24 of the Income Tax Act of 1961 deals with the deduction available on interest paid on housing loans. It provides relief to taxpayers by allowing them to claim deductions on the interest component of their home loan repayments. However, it is important to note that the provisions of Section 24 have changed the new tax regime.

What are the Key Changes in the New Tax Regime?

With the introduction of the new tax regime, there have been significant alterations to the provisions of Section 24. Some of the key changes include:

Standard Deduction vs. Itemized Deductions

Under the previous tax regime, taxpayers could claim deductions under various sections, including Section 24, by opting for itemized deductions. However, the new tax regime offers a standard deduction instead of itemized deductions, thereby affecting the applicability of Section 24.

Optional Regime

Taxpayers now have the option to choose between the old tax regime and the new tax regime based on their preferences and financial circumstances. The choice of regime directly impacts the eligibility and quantum of deductions available under Section 24.

Lower Tax Rates

The new tax regime offers lower tax rates but limits the availability of certain deductions and exemptions, including those under Section 24. Taxpayers need to weigh the benefits of lower tax rates against the reduced deductions under the new regime.

Applicability of Section 24 in the New Tax Regime

Despite the changes introduced in the new tax regime, Section 24 continues to play a significant role in providing tax relief to homeowners. Here is how Section 24 applies in the new tax regime:

Deduction on Self-occupied Property

In the case of a self-occupied property, taxpayers can claim a deduction of up to ₹2 lakh on the interest paid on the home loan under Section 24. This deduction is available irrespective of whether the property is under construction or already constructed.

Deduction on Let-out or Deemed Let-out Property

For properties that are let-out or deemed to be let-out, taxpayers can claim a deduction for the entire interest paid on the home loan. There is no upper limit on the deduction under Section 24 of the Income Tax Act for let-out properties.

Additional Deduction for Affordable Housing

In addition to the regular deduction under Section 24, taxpayers purchasing affordable housing properties may be eligible for an additional deduction of up to ₹1.5 lakh on the interest paid on the home loan. This additional deduction is subject to certain conditions and criteria.

Impact on Taxpayers

The changes in Section 24 and the introduction of the new tax regime have implications for taxpayers, especially those with housing loans. Here is how taxpayers are affected by this change:

Choice of Tax Regime

Taxpayers need to evaluate whether it is beneficial for them to opt for the old tax regime with higher deductions under Section 24 or the new tax regime with lower tax rates but reduced deductions.

Financial Planning

Homebuyers need to factor in the tax implications of their housing loans while planning their finances. Understanding the deductions available under Section 24 can help taxpayers make informed decisions regarding their investments and tax-saving strategies.

Compliance and Documentation

Taxpayers must ensure compliance with the provisions of Section 24 and maintain accurate documentation of their home loan transactions to claim deductions effectively. Any discrepancies or non-compliance may lead to penalties or legal issues.

Wrapping it Up

Section 24 in the new tax regime has undergone significant changes, impacting the deductions available on housing loan interest. Taxpayers must familiarize themselves with these changes and assess their implications on their tax liabilities and financial planning. By understanding the applicability of Section 24 and making informed choices between the old and new tax regimes, taxpayers can optimize their tax-saving strategies and achieve better financial outcomes.

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