Buying a house with the help of a home loan comes with several tax advantages in India. These benefits become even more relevant when the property is rented out and generates regular income. However, the extent of tax savings depends largely on whether you choose the old income tax regime or the new tax regime, as the rules for deductions differ significantly between the two.
Many taxpayers remain confused about how much tax benefit they can actually claim on a rented property, especially when the house is jointly owned and financed through a joint home loan. Understanding these rules clearly can help you make a smarter tax-planning decision.
If a property is purchased jointly—such as by a husband and wife—and both are co-borrowers of the home loan, each co-owner can claim tax benefits separately. The deductions are allowed in proportion to their ownership share in the property and their contribution to loan repayment.
For example, if both co-owners have equal ownership and pay the loan in equal parts, then both are eligible to claim deductions individually within the prescribed limits.
When a house is rented out, the rental income is taxed under the head “Income from House Property.” The following rules apply in both tax regimes:
A standard deduction of 30% on the annual rental income is allowed to cover repairs and maintenance.
The remaining amount is considered taxable income from house property.
However, the key difference arises in how home loan interest and losses are treated under the old and new tax regimes.
Under the old tax regime, taxpayers enjoy broader tax benefits on a rented property:
There is no upper limit on interest deduction for a rented property.
If interest payments exceed rental income, it results in a loss from house property.
Loss from house property can be adjusted against other income sources, including salary income.
The maximum loss that can be set off in one financial year is ₹2 lakh.
Any remaining loss can be carried forward for up to 8 years and adjusted against future house property income.
Principal repayment of the home loan qualifies for deduction up to ₹1.5 lakh per year, along with other eligible investments.
This benefit is available only in the old tax regime.
The deduction can be claimed only after the construction is complete and possession is received.
The new tax regime offers lower tax rates but removes most exemptions and deductions. This significantly affects home loan-related tax benefits:
You can claim interest deduction only up to the rental income after the 30% standard deduction.
If interest exceeds rental income, the resulting loss cannot be set off against any other income.
Loss from house property cannot be carried forward to future years.
This makes the new regime less beneficial for taxpayers with high home loan interest.
Deduction on principal repayment under Section 80C is not allowed in the new tax regime.
Rental income is taxed in proportion to ownership share, not loan contribution. Even if one co-owner pays a higher portion of the loan EMI, rental income taxation depends strictly on ownership mentioned in property documents.
Each co-owner can:
Claim 30% standard deduction on their share of rent.
Claim interest deduction based on their share of the home loan.
Claim principal deduction (only in old regime) as per their repayment share.
The old tax regime is generally more beneficial if:
You have a high home loan interest.
You want to set off house property losses against salary income.
You want to claim Section 80C deductions.
The new tax regime may suit you if:
Your deductions are limited.
Rental income comfortably exceeds interest payments.
You prefer lower tax rates with simpler compliance.
Tax benefits start only after possession of the property.
Deductions depend on ownership share, not relationship.
Once chosen for a financial year, the tax regime decision should be made carefully.
Renting out a house purchased with a home loan can offer meaningful tax savings—but only if you understand how deductions work under each tax regime. While the new tax regime simplifies taxation, the old regime continues to provide greater flexibility and higher benefits for homeowners with significant loan obligations. Before making your choice, it’s wise to compare both regimes based on your income structure and long-term financial goals.
